<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                  FORM 10-KSB/A
                                (Amendment No. 1)


[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
      ACT OF 1934.

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934.

             FOR THE TRANSITION PERIOD FROM __________ TO __________

                        COMMISSION FILE NUMBER: 001-31925

                        VASO ACTIVE PHARMACEUTICALS, INC.

                 (Name of Small Business Issuer in Its Charter)

                 DELAWARE                                 02-0670926
      (State or other jurisdiction             (IRS Employer Identification No.)
    of incorporation or organization)

      99 ROSEWOOD DRIVE, SUITE 260
         DANVERS, MASSACHUSETTS                              01923
(Address of principal executive offices)                   (Zip code)

                    ISSUER'S TELEPHONE NUMBER: (978) 750-1991

       SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE

         SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:

                     CLASS A COMMON STOCK, $0.0001 PAR VALUE

      Check whether the issuer is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act |_|

      Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes|X| No|_|

      Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in the definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|

      Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes|_| No|X|

      The issuer's revenues for its most recent fiscal year were $104,864.

                                       1

<PAGE>

      The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the issuer as of April 10, 2007 was $2,234,065, based on
5,728,371 shares of Class A Common Stock held by non-affiliates at $0.39 per
share, based on the average of the bid and asked prices as of the same date as
quoted in the OTC Bulletin Board.

      The number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date was:

<TABLE>
<S>                                             <C>
Class A Common Stock, $0.0001 par value         5,828,604 shares outstanding on April 10, 2007
Class B Common Stock, $0.0001 par value         4,500,000 shares outstanding on April 10, 2007
</TABLE>

Transitional Small Business Disclosure Format  Yes|_| No|X|

                                       2



<PAGE>

                        VASO ACTIVE PHARMACEUTICALS, INC.
                                TABLE OF CONTENTS


                                     PART I

                                                                            Page
                                                                            ----
Item 1.     Description of Business.                                          5
Item 2.     Description of Property.                                         23
Item 3.     Legal Proceedings.                                               23
Item 4.     Submission of Matters to a Vote of Security Holders.             24

                                     PART II

Item 5.     Market for Common Equity, Related Stockholder Matters and
            Small Business Issuer Purchases of Equity Securities.            25
Item 6.     Management's Discussion and Analysis or Plan of Operations.      27
Item 7.     Financial Statements.                                            31
Item 8.     Changes In and Disagreements With Accountants On Accounting
            and Financial Disclosure.                                        31
Item 8A.    Controls and Procedures.                                         31

                                    PART III


Item 9.     Directors, Executive Officers, Promoters and Control Persons
            and Corporate Compliance; Compliance With Section 16(a) of
            the Exchange Act.                                                31
Item 10.    Executive Compensation.                                          37
Item 11.    Security Ownership of Certain Beneficial Owners and Management
            and Related Stockholder Matters.                                 41
Item 12.    Certain Relationships and Related Transactions and Director
            Independence.                                                    43
Item 13.    Exhibits.                                                        46
Item 14.    Principal Accountant Fees and Services.                          47


      Unless the context requires otherwise, references in this Annual Report to
"Vaso Active," "the Company," "we," "our" and "us" refer to Vaso Active
Pharmaceuticals, Inc. Vaso Active, A-R Extreme(R), Termin8(R), and our logo are
trademarks of the Company. Osteon(R), RepiDerm(R) and PENtoCORE(R) are
registered trademarks of BioChemics, Inc. This Annual Report also contains
trademarks and tradenames of other parties.

EXPLANATORY NOTE

Vaso Active Pharmaceuticals, Inc. (the "Company") is filing this Amendment No.1
on Form 10-KSB/A for the purpose of modifying certain disclosures in the
Company's Form 10-KSB filing for the fiscal year ended December 31, 2006, as
filed with the U.S. Securities and Exchange Commission on April 17, 2007 (the
"Original Filing"). Modifications have been made to the following sections:

     Item 1. Description of Business. Risk Factors. Our Indebtedness Could Have
a Negative Effect on Our Financial Condition - page 16.

     Item 3. Legal Proceedings. Settlement of Certain Stockholder Litigation -
             page 24

     Part III - pages 32-45

     Report of Independent Public Accounting Firm-page F-2

     Statements of Operations Chart-page F-4.

     Note 1. Nature of Business and Operations. Business Development-page F-7

     Note 5. Notes Payable-page F-11

     Note 8. Stock Option Plans-page F-13.

No other information in the Original Filing in hereby amended. This Form
10-KBS/A continues to describe the conditions as of the date of the Original
Filing, and accordingly, the Company has not updated the disclosures contained
herein to reflect events that occurred at a later date.



                                       3

<PAGE>

                                     PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

      This report contains both historical and forward-looking statements. The
forward-looking statements in this annual report are not based on historical
facts, but rather reflect the current expectations of our management concerning
future results and events. These forward-looking statements include, but are not
limited to, statements concerning our plans to continue the marketing,
commercialization and sale of our products and product candidates; address
certain markets; engage third-party manufacturers; and evaluate additional
product candidates for subsequent commercial development. In some cases, these
statements may be identified by terminology such as "may," "will," "should,"
"expect," "plan," "anticipate," "believe," "estimate," "predict," "potential,"
or "continue," or the negative of such terms and other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements contained herein are reasonable, we cannot guarantee future results,
the outcome of pending litigation matters, levels of activity, performance or
achievements. These statements involve known and unknown risks and uncertainties
that may cause our or our industry's results, levels of activity, performance or
achievements to be materially different from those expressed or implied by
forward-looking statements.

      Management's Discussion and Analysis ("MD&A") should be read together with
our financial statements and related notes included elsewhere in this annual
report. This annual report, including the MD&A, contains trend analysis and
other forward-looking statements. Any statements in this annual report that are
not statements of historical facts are forward-looking statements. These
forward-looking statements made herein are based on our current expectations,
involve a number of risks and uncertainties and should not be considered as
guarantees of future performance.

      The single most pressing factor that could cause actual results to differ
materially and adversely is our lack of working capital and our need to raise
additional capital to repay Senior Secured Convertible Notes in the amount of
$2,500,000 due May 1, 2007.

      Other factors that could cause actual results to differ materially include
without limitation:

      o     an inability to arrange debt or equity financing;
      o     our ability to finance our business;
      o     the impact of new technologies on our products and our competition;
      o     adverse changes in laws or rules or regulations of governmental
            agencies;
      o     interruptions or cancellation of existing contracts;
      o     impact of competitive products and pricing;
      o     product demand and market acceptance and risks;
      o     the presence of competitors with greater financial resources;
      o     product development and commercialization risks;
      o     our ability to maintain our current pricing model and/or decrease
            our cost of sales;
      o     continued availability of supplies or materials used in
            manufacturing at the current prices;
      o     the ability of management to execute plans and motivate personnel in
            the execution of those plans;
      o     adverse publicity related to our products or the company itself;
      o     adverse claims relating to our intellectual property;
      o     the adoption of new, or changes in, accounting principles;
      o     legal proceedings;
      o     the costs inherent with complying with new statutes and regulations
            applicable to public reporting companies, such as the Sarbanes-Oxley
            Act of 2002;
      o     other new lines of business that the Company may enter in the
            future; and
      o     our ability to repay our indebtedness, including repayment of the
            notes issued recently.

      These factors are not necessarily all of the important factors that could
cause actual results to differ materially from those expressed in the
forward-looking statements in this annual report. Other unknown or unpredictable
factors also could have material adverse effects on our future results. The
forward-looking statements in this annual report are made only as of the date of
this annual report, and we do not have any obligation to publicly update any
forward-looking statements to reflect subsequent events or circumstances. See
also Item 1, "Description of Business - Risk Factors."

                                       4

<PAGE>

ITEM 1.  DESCRIPTION OF BUSINESS

      We are an early stage company focused on commercializing, marketing and
selling over-the-counter ("OTC") pharmaceutical products that we believe
incorporate a proprietary PENtoCORE technology. We are also focused on
pre-clinical testing and research on a patented vaso active lipid encapsulated
("VALE") technology. The unique VALE technology is intended to be a patchless,
lipid-based delivery system that BioChemics, Inc., our majority stockholder, is
formulating into various applications that the Company hopes to market in the
future, subject to receipt of appropriate Food and Drug Administration, or
"FDA," approvals and subject to the Company successfully raising additional
working capital. The technology uses an active process incorporating chemical
vasodilators to deliver drugs through the skin and into the bloodstream. The
PENtoCORE technology is a topical formulation, in contrast to the VALE
transdermal technology. The Company is currently marketing three products that
incorporate the proprietary PENtoCORE technology:

      o     OSTEON - an OTC external analgesic designed to provide temporary
            relief from the muscular-skeletal pain associated with arthritis;
      o     A-R EXTREME - an OTC external analgesic designed to provide
            temporary relief from the muscle and joint pain associated with
            athletic activity; and
      o     TERMIN8 - an OTC antifungal lotion designed to treat athlete's foot.

      The Company has a product candidate, RepiDerm, for the treatment of acne.
The formulation of the product has been completed. Our activities relating to
labeling, package design and branding for the product have been suspended due to
working capital constraints. We have five additional product candidates at
various stages of formulation and development.

      We began our operations in January 2001, as a division of BioChemics, a
pharmaceutical company engaged in the development of transdermal and topical
drug delivery systems. BioChemics is based in Danvers, Massachusetts. BioChemics
was founded in 1989 by John J. Masiz, our former President and Chief Executive
Officer, and was incorporated in Delaware in 1991. BioChemics began developing
the VALE technology in 1989 and has subsequently been issued four U.S. patents
in connection with this technology. BioChemics granted us an exclusive,
irrevocable, worldwide license to use and practice the VALE patents and the
PENtoCORE technology in order to commercialize, market and sell OTC
pharmaceutical products. In January 2003, we incorporated in Delaware and became
a subsidiary of BioChemics. In December 2003, we completed our initial public
offering.

BUSINESS STRATEGY

      Our general business strategy is to commercialize, market and sell
transdermal and topical OTC drugs that we believe can be delivered, by utilizing
either the VALE or PENtoCore technologies, in a manner which is efficient,
reliable and easy to use by consumers.

      As an early stage company, we are subject to a number of risks that are
characteristic of early stage companies including, but not limited to, our need
to obtain additional financing and generate profitability and cash flows from
operations. As a company engaged in the pharmaceutical industry, we are subject
to a number of risks typical of pharmaceutical companies including, but not
limited to, our need to adhere to strict governmental regulations, our ability
to withstand intense competition from larger companies with greater financial
resources and our ability to defend both the technology and intellectual
property which we have licensed from BioChemics and to protect our own
intellectual property.

      The implementation of our business strategy was adversely affected by
regulatory and private securities actions taken against us and our management
beginning in April 2004. At the same time, we suspended the marketing and sale
of our products until we were reasonably sure that our product marketing was
consistent with the FDA's requirements and policies. As a result of our
voluntary delisting and continued delisting of our common stock from the Nasdaq
stock market, the action taken against us by the SEC, the issues raised by the
SEC regarding the regulatory status of our products, and the significant decline
in market value of our securities subsequent to these matters, several
shareholder actions were filed against Vaso Active and certain of its officers
and directors. See Item 3, "Legal Proceedings."

      In August and September 2004, Vaso Active and its former Chief Executive
Officer, John Masiz, settled all SEC matters regarding our alleged federal
securities laws violations stemming from allegedly misleading disclosures in our
initial public offering registration statement, our 2003 annual report and a
statement on our website concerning the FDA's approval or qualification of our
products. Both Vaso Active and Mr. Masiz agreed to settlement terms with the SEC
without admitting or denying the allegations of their civil complaint, pursuant
to which both parties are permanently enjoined from violating the anti-fraud
provisions of the federal securities law. Mr. Masiz was also prohibited from
serving as an officer or director of any public company, including Vaso Active,
for a period of five years. He is however, permitted to remain an
employee/consultant of Vaso Active. Since August 2004, Mr. Masiz has been
employed by Vaso Active to provide consulting services pursuant to the terms of
his employment agreement with the Company.

                                       5

<PAGE>

      During 2004, together with newly engaged outside FDA counsel, we revised
our product labels and in September 2004, began shipping our products on a
limited basis. In July 2005, we entered into a product brokerage agreement with
Ferolie Corporation, d/b/a Eastern Sales & Marketing, or ESM, a marketing and
merchandising agency, to sell our products to retailers. During July of 2006 we
began shipping product under this brokerage agreement. See Item 1, "Description
of Business - Distribution" for further discussion regarding the Ferolie
agreement.

      In September 2005, Vaso Active and certain of its officers and directors
entered into agreements to settle all shareholder actions (the "Class Actions")
and derivative shareholder actions filed against Vaso Active and certain named
officers and directors (the "Derivative Actions"). See Item 3, "Legal
Proceedings."

      The success of our marketing and sales activities will be dependent, among
other things, on our ability to

      o     secure additional financing;
      o     enter into qualified strategic partnerships;
      o     place our products into the market, including through relationships
            with third parties such as ESM;
      o     consumer perception of our products; and
      o     retain and attract qualified marketing and sales personnel.

Although we believe that our products if supported by sufficient advertising
will earn retailers' acceptance, there can be no assurance that this will
happen, or if it does, that it will continue.

TECHNOLOGY OVERVIEW

      We believe that Vaso Active's formulation technologies can be applied to a
significant array of currently off-patent drugs for commercialization in the OTC
marketplace. The VALE technology is a transdermal formulation that we believe
may have the potential to introduce drugs through the skin and into the
bloodstream in an efficient and effective manner. The PENtoCORE technology is a
topical formulation that we believe allows for the formulation of OTC products
with certain "use advantages" over similar products marketed by our competitors.
"Use advantages" include characteristics such as lack of odor, less residue and
a more pleasant texture. We license the VALE and PENtoCORE technologies from
BioChemics.

      Transdermal drug delivery is generally considered to be any process of
delivering drugs through the skin and into the bloodstream without the use of an
invasive instrument such as a needle. We believe that transdermal drug delivery
offers potential advantages over other commonly accepted modes of drug delivery
for the treatment of certain diseases and medical conditions. We believe that
these potential advantages include:

      o     REDUCTION OF ROUTE-OF-ADMINISTRATION RELATED SIDE EFFECTS. Because
            they are absorbed through the stomach, some orally administered
            medicines can cause significant gastrointestinal side effects,
            sometimes leading to discontinuation of the medication. There also
            may be side effects associated with the delivery of some drugs
            through the nasal lining, the lungs, and the skin using traditional
            methods. The goal of the VALE transdermal delivery system is to
            provide effective therapy while minimizing side effects.
      o     IMPROVED DRUG PERFORMANCE. Transdermal formulations may have the
            potential to improve the effectiveness of a drug by avoiding the
            stomach and the first-pass metabolism associated with oral delivery
            of drugs. Transdermal drug delivery also may have the potential to
            create a higher bioavailability index for certain drugs, allowing
            for the desired concentration of the drug molecule to reach the
            bloodstream from a smaller dose of drug applied to the patient.
            Bioavailability index is defined as the fraction of the drug amount
            administered that reaches the central circulation system. By
            definition, bioavailability for a drug administered intravenously is
            100%, and drugs administered by other methods will typically have
            bioavailability indices of less than 100%, depending on the
            efficiency of drug transfer into the blood.

      There are many different technologies used to deliver drugs transdermally.
The most common technologies employed are: (i) patches that adhere to the skin,
holding a drug in place while it is administered over time; (ii) liposome, or
artificially prepared cell-like structures, which are applied topically and
absorbed; or (iii) an outside energy source producing electricity
(iontophoresis), or sound (sonophoresis), to help move the drug through the
various skin layers. We believe all three of these technologies have certain
drawbacks that may limit their utility.

                                       6

<PAGE>

      THE VALE TECHNOLOGY - The goal behind the development of the VALE
technology is to create an active transdermal drug system that efficiently and
effectively delivers drugs through the skin and into the blood supply without
the need of a patch. In order to accomplish this, a delivery system must be able
to overcome three skin barriers:

      o     the outer layers, or the stratum corneum and the epidermis;

      o     the second layer, or the dermis; and

      o     the walls of individual capillaries.

      The VALE technology is intended to be a patchless, lipid-based delivery
system which uses an active process to deliver drugs through the skin and into
the bloodstream. The technology is based upon the unique concept of
incorporating chemical vasodilators into the drug delivery vehicle. These
chemical compounds are intended to act on the network of blood vessels located
near the surface of the skin to elicit the physiologic response of dilating or
relaxing the blood vessels in the immediate area. This should result in
increased blood flow to the area. The theory behind the VALE technology is that
as blood flow increases and the blood vessels dilate, the active drug molecules
incorporated into the delivery system are transported actively and efficiently
into the bloodstream.

      We believe that the VALE technology has the potential to eliminate the
need for a patch and to allow for the effective delivery of many active
ingredients.

      THE PENTOCORE TECHNOLOGY - The PENtoCORE technology is a topical
formulation, as opposed to the VALE transdermal technology. Although the
PENtoCORE technology does not achieve its effect by delivering the drug through
the skin and into the bloodstream, we believe that this technology may enable
the formulation of topical products that are pleasant to use because they do not
have the odor, greasy feel or residue often associated with other
topically-applied drug products. In addition, it may be possible to use the
PENtoCORE technology with certain active ingredients to develop topical
formulations that may facilitate a longer-lasting effect.

RESEARCH AND DEVELOPMENT

      We do not currently, nor do we intend to directly, conduct any research
and development on our own behalf with respect to any of our current products or
product candidates. In February 2003, we entered into a development and
manufacturing agreement with BioChemics with respect to the ongoing
manufacturing and development of our products and product candidates. Under this
agreement, BioChemics will research, develop and manufacture products for us
pursuant to specific purchase orders submitted by us from time to time.
BioChemics will charge us a development and manufacturing fee at a rate of cost
plus 10%. BioChemics does not manufacture our products itself, but rather uses
two different privately owned third party companies as its contract
manufacturers. However, in the event that BioChemics is unwilling or unable to
meet our manufacturing needs in accordance with the terms of the agreement with
us, we have the right to retain outside third parties to manufacture our
products.

      Until August 2005, BioChemics was engaged in developing a transdermal
ibuprofen product on our behalf. From January 2004 to August 2005, substantially
all of our research and development costs related to the ibuprofen product
candidate. During that period, we spent approximately $20,000 per month on this
project, which proceeded into the animal testing stage. Prior to 2004, the
Company did not make any research and development expenditures on the ibuprofen
or any other product candidate; Biochemics paid for these costs.

      In August 2005, we instructed BioChemics to cease further development of
the ibuprofen product candidate on our behalf because we determined that the
total development cost would likely exceed $1,000,000. Under our license
agreement with BioChemics, we do not have the right to market and sell OTC
products for which development costs exceed $1,000,000. Our negotiations with
BioChemics to amend the license agreement to permit us to have the right to
market and sell the ibuprofen product despite the amount of the expected
development costs have been suspended due to working capital constraints on the
Company and our corresponding inability to continue to fund the program.

                                       7

<PAGE>

INTELLECTUAL PROPERTY

      BioChemics owns proprietary technology developed in connection with its
four U.S. patents:

      o     Patent No. 5,460,821, issued on October 24, 1995 and expiring June
            23, 2013
      o     Patent No. 5,645,854, issued on July 8, 1997 and expiring June 23,
            2013
      o     Patent No. 5,853,751, issued on December 29, 1998 and expiring June
            23, 2013
      o     Patent No. 6,635,274, issued on October 21, 2003 and expiring
            October 27, 2020

      Under the terms of our licensing agreement with BioChemics, BioChemics
granted us an exclusive, irrevocable, worldwide license to use and practice the
VALE patents and PENtoCORE technology in order to commercialize, market and sell
OTC pharmaceutical products. In addition BioChemics has four other patents
pending domestically. Internationally, BioChemics has been issued foreign
patents in 17 countries and patents pending in seven others. BioChemics has
filed, and will continue to file as required, for second-generation patents on a
number of its products. BioChemics also owns 16 registered trademarks, including
Osteon, RepiDerm and PENtoCORE. We own the U.S. trademark protection for the
names "Termin8" and "A-R Extreme."

      Our licensing agreement with BioChemics allows us to commercialize, market
and sell our products and product candidates using BioChemics' patents,
proprietary information and trademarks in the OTC pharmaceutical market. The
term of this licensing agreement extends through the date of the last
BioChemics' patent to expire. With respect to the portions of the licensing
agreement that do not apply to a BioChemics patent or patent application, this
agreement extends though February 2013. The licensing agreement is automatically
renewed for successive two-year terms for the non-patent technology unless
otherwise terminated by us pursuant to the license agreement. We have the right
to terminate the license agreement for any reason and without cause upon 90 days
written notice of termination to BioChemics. BioChemics has no equivalent right
of termination.

GOVERNMENT REGULATIONS

      GENERAL

      The development, testing, manufacture, labeling, marketing, and promotion
of OTC drugs are subject to extensive regulation by the FDA under the Federal
Food, Drug and Cosmetic Act ("FFDCA") and by the Federal Trade Commission, or
FTC, under the Federal Trade Commission Act ("FTC Act").

      The degree of regulation under the FFDCA is dependent, in part, upon
whether the OTC drug, as formulated, labeled, and promoted, is considered by
qualified experts, based on publicly available scientific data and information,
to be generally recognized as safe and effective ("GRASE"), for its recommended
conditions of use. If an OTC drug as formulated, labeled, and promoted is not
considered GRASE for its recommended conditions of use or, if so considered, if
it has not been used to a material extent or for material time, the drug is
regulated under the FFDCA as a "new drug" which requires pre-market approval in
the form of a new drug application, or NDA, before it can be commercially
marketed.

      To determine which OTC drugs are GRASE, the FDA has undertaken a
rulemaking initiative in which it seeks to define by regulation which OTC drugs
can be considered to be GRASE and thus can be marketed without first obtaining
an approved NDA. This rulemaking initiative, referred to as the "OTC Review
Program," was initiated on May 11, 1972, and is ongoing. The OTC Review Program
sets forth in the form of an OTC Drug Monograph for specific categories of OTC
drugs (e.g., Topical Anti-Fungal OTC drugs) the conditions under which
recognized OTC active ingredients can be considered GRASE and not misbranded.
These conditions include the strength of the active ingredient, acceptable
dosage forms, the use of safe and suitable inactive ingredients, and the
recommended conditions of use, including indications, warnings, precautions, and
directions for use.

      If the active ingredient used in an OTC drug is not covered by the OTC
Review Program, or even if it is covered, if the conditions of use (e.g.,
strength, dosage form, indications) deviate from that eligible for GRASE status
under the OTC Review Program, the product is considered by the FDA to be a "new
drug" subject to the NDA pre-market approval requirements. For a full discussion
of these requirements see the discussion below in "The NDA Review Process."

      Pending the issuance of a final and effective OTC Drug Monograph for the
category of OTC drug involved (e.g., external analgesic), the FDA has adopted an
enforcement policy of not proceeding against the continued marketing of OTC
drugs subject to the OTC Review Program. This enforcement discretion does not,
however, apply if: (a) the FDA considers the drug product involved as falling
outside of the scope of the OTC Review Program in that the active ingredient or
conditions of use deviate from those eligible for GRASE status under the OTC
Review Program; (b) the product presents a health hazard; or (c) the active
ingredient at the dosage level involved was not available OTC prior to December
4, 1975. The FDA's willingness to defer enforcement action generally terminates
upon the effective date of the final OTC Drug Monograph covering the applicable
drug product.

                                       8

<PAGE>

      Other requirements or limitations for OTC drugs imposed under the FFDCA
include: (a) a requirement that the drug be manufactured in conformity with
current good manufacturing practices, or cGMPs, a system of manufacturing that
insures the quality, reproducibility, and traceability of drug products intended
for human use; (b) a requirement that the labeling for the product contain
adequate directions for use and warnings; (c) a requirement that the
manufacturer of the drug product register with the FDA; (d) a requirement that
all drugs manufactured for commercial distribution be listed with the FDA; (e) a
prohibition against making any false or misleading misrepresentations in any
particular in any labeling for the product; and (f) a requirement, beginning
December 2007, that the manufacturer/distributor report serious and unexpected
adverse drug experiences within 15 calendar days of receipt of the information.
As noted above, OTC products marketed in accordance with OTC Drug Monographs do
not require FDA premarket approval prior to marketing. If an OTC product
deviates from an OTC Drug Monograph requirement in active ingredient(s),
intended use, method of administration, dosage form, or labeling, among other
things, then the manufacturer or distributor must obtain pre-market approval in
the form of an NDA before commercial marketing.

      The failure to adhere to the requirements of the FFDCA can result in: (a)
seizure of violative products; (b) injunctions against continued violations of
the FFDCA, including active FDA supervision in instituting appropriate
corrective action and prohibition against continued marketing of the violative
products pending an affirmative determination by the FDA and the courts that the
violations have been adequately rectified; (c) civil penalties in the form of
liquidated damages and/or recovery of profits from illegal activities; and (d)
the imposition of criminal sanctions and penalties against responsible persons.

      The FTC, under the FTC Act, regulates print and broadcast media
advertisements for OTC drugs. The FTC Act requires that advertisements be
neither false nor misleading and that claims for products purportedly based on
scientific data be supported by adequate and well controlled studies and that a
reasonable basis exists in support of all other claims. Claims consistent with
the terms of an OTC Drug Monograph are usually accepted by the FTC as having
been adequately substantiated. The penalties for the failure of an advertised
claim to have adequate substantiation, or for claims that are false and
misleading, include: (a) the FTC initiating administrative action for consumer
redress; (b) FTC seeking a court injunction to prevent further false and
misleading advertising; (c) the imposition by a court of liquidated damages and
equitable relief to recover profits and provide consumer redress from illegal
activity; and (d) the placing of the company in receivership to assure that the
assets of the company are not dissipated pending resolution of FTC claims.

      THE NDA REVIEW PROCESS

      The FDA has taken the position that insofar as our products or product
candidates use a transdermal technology, the products fall outside that eligible
for GRASE status under the OTC Review Program and thus the Company must obtain
NDA approval of the products before they can be commercially marketed. Under the
FDA's procedures it is generally less burdensome to obtain NDA approval of a
drug product which contains active ingredient(s): (a) considered GRASE in a
final OTC Drug Monograph, or (b) contained in a drug product eligible for an
abbreviated new drug application, or ANDA, approval, but which differs in
certain conditions of use (e.g., dosage form) from that covered by a final OTC
Drug Monograph or eligible for ANDA approval. However, once a product becomes
subject to the NDA requirements, the general provisions of which are set forth
below, there can be no assurance that a company can generate the additional data
and information necessary to support NDA approval of the proposed variant
product or that approval can be obtained without substantial expenditures and
delays.

      The steps ordinarily required before a new drug that is subject to NDA
approval may be marketed in the United States include preclinical laboratory
tests, animal tests and formulation studies, the submission to the FDA of an
investigational new drug application, or IND, which must become effective before
clinical testing may commence, and adequate and well-controlled clinical trials
on human subjects to establish the safety and effectiveness of the drug for each
indication for which FDA approval is sought. Satisfaction of FDA pre-market
approval requirements typically takes several years and the actual time required
may vary substantially based upon the type, complexity and novelty of the
product or the disease or condition for which the new drug is indicated.
Government regulation may delay or prevent marketing of potential products for a
considerable period of time and impose costly procedures upon a manufacturer's
activities. Success in early-stage clinical trials does not assure success in
later stage clinical trials. Data obtained from clinical activities is not
always conclusive and may be susceptible to varying interpretations that could
delay, limit, or prevent regulatory approval. Even if a product receives
regulatory approval, later discovery of previously unknown problems with a
product may result in restrictions on the product or even complete withdrawal of
the product from the market.

                                       9

<PAGE>

      Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal trials to assess the potential safety and
efficacy of the product. The conduct of the preclinical tests and formulation of
compounds for testing must comply with Federal regulations and requirements. The
results of preclinical testing are submitted to the FDA as part of an IND.

      A 30-day waiting period after the filing of each IND is required prior to
the commencement of clinical testing in humans. If the FDA has not commented on
or questioned the IND within this 30-day period, clinical trials may begin. If
the FDA has comments or questions, the questions must be answered to the
satisfaction of the FDA before initial clinical testing can begin. In addition,
the FDA may, at any time, impose a clinical hold on ongoing clinical trials. If
the FDA imposes a clinical hold, clinical trials cannot commence or recommence
without FDA authorization and then only under terms authorized by the FDA. In
some instances, the IND process can result in substantial delay and expense.

      Clinical trials typically involve the administration of the
investigational new drug to volunteers or patients under the supervision of a
qualified investigator. Clinical trials must be conducted in compliance with
Federal regulations and requirements, under protocols detailing the objectives
of the trial, the parameters to be used in monitoring safety and the
effectiveness criteria to be evaluated. Each protocol involving testing on U.S.
subjects must be submitted to the FDA as part of the IND. The study protocol and
informed consent information for patients in clinical trials must also be
approved by the institutional review board at each institution where the trials
will be conducted.

      Clinical trials to support NDAs for marketing approval are typically
conducted in three sequential phases, but the phases may overlap. In Phase I,
the initial introduction of the drug into healthy human subjects or patients,
the drug is tested to assess metabolism, pharmacokinetics and pharmacological
actions and safety, including side effects associated with increasing doses.
Phase II usually involves trials in limited patient populations, to determine
dosage tolerance and optimum dosage, identify possible adverse effects and
safety risks, and provide preliminary support for the efficacy of the drug in
the indication being studied.

      If a compound demonstrates evidence of effectiveness and an acceptable
safety profile in Phase II evaluations, Phase III trials are undertaken to
further evaluate clinical efficacy and to further test for safety within an
expanded patient population, typically at geographically dispersed clinical
trial sites it is possible that Phase I, Phase II, or Phase III testing of
product candidates may not be completed successfully within any specified time
period, if at all.

      After successful completion of the required clinical testing, generally an
NDA is prepared and submitted to the FDA. FDA approval of the NDA is required
before marketing of the product may begin in the United States. The NDA must
include the results of extensive clinical and other testing and a compilation of
data relating to the product's pharmacology, chemistry, manufacture, and
controls. The cost of preparing and submitting an NDA is substantial. Under
federal law, the submission of NDAs are additionally subject to substantial
applications user fees, currently exceeding $800,000, and the manufacturer
and/or sponsor under an approved NDA are also subject to annual product and
establishment user fees, currently exceeding $49,000 per product and $300,000
per establishment. These fees are typically increased annually.

      The FDA has 60 days from its receipt of an NDA to determine whether the
application will be accepted for filing based on the agency's threshold
determination that the NDA is sufficiently complete to permit substantive
review. Once the submission is accepted for filing, the FDA begins an in-depth
review of the NDA. Under federal law, the FDA has agreed to certain performance
goals in the review of NDAs. Most applications for non-priority drug products
are reviewed within ten months. The review process is often significantly
extended by FDA requests for additional information or clarification of
information already provided in the submission. The FDA may also refer
applications for novel drug products or drug products which present difficult
questions of safety or efficacy to an advisory committee, typically a panel that
includes clinicians and other experts, for review, evaluation, and a
recommendation as to whether the application should be approved. The FDA is not
bound by the recommendation of an advisory committee.

      If FDA evaluations of the NDA and the manufacturing facilities and
procedures, which typically involves an FDA on-site inspection, are favorable,
the FDA may issue an approval letter, or, in some cases, an approvable letter
followed by an approval letter. An approvable letter generally contains a
statement of specific conditions that must be met in order to secure final
approval of the NDA. If and when those conditions have been met to the FDA's
satisfaction the FDA will typically issue an approval letter. An approval letter
authorizes commercial marketing of the drug with specific prescribing
information for specific indications. If the FDA's evaluation of the NDA
submission or manufacturing facilities is not favorable, the FDA may refuse to
approve the NDA or issue a not approvable letter. The not approvable letter
outlines the deficiencies in the submission and often requires additional
testing or information in order for the FDA to reconsider the application. Even
with submission of this additional information, the FDA ultimately may decide
that the application does not satisfy the regulatory criteria for approval. With
limited exceptions, FDA may withhold approval of an NDA regardless of prior
advice it may have provided or commitments it may have made to the sponsor. As a
condition of NDA approval, the FDA may require post-approval testing and
surveillance to monitor the drug's safety or efficacy and may impose other
conditions, including labeling restrictions. Such labeling restrictions can
materially impact the potential market and profitability of the drug. Once
granted, product approvals can still be withdrawn if compliance with regulatory
standards is not maintained or problems are identified following initial
marketing.

                                       10

<PAGE>

      Once the NDA is approved, a product will be subject to certain
post-approval requirements, including requirements for adverse event reporting
and submission of periodic reports. Persons responsible for manufacture or
distribution are subject to FDA inspections to assess compliance with applicable
statutory and regulatory requirements.

      Additionally, the FDA also strictly regulates the promotional claims that
may be made about drug products. The FDA requires substantiation of any claims
of superiority of one product over another including, in many cases,
requirements that such claims be proven by adequate and well controlled
head-to-head clinical trials. The FTC Substantiation Standards are very similar
for the advertising of OTC products. To the extent that market acceptance of
Vaso Active's products may depend on their superiority over existing therapies,
any restriction on Vaso Active's ability to advertise or otherwise promote
claims of superiority, or requirements to conduct additional expensive clinical
trials to provide proof of such claims, could negatively affect the sales of
Vaso Active's products and/or its costs.

      REGULATION OF OUR PRODUCTS AND PRODUCT CANDIDATES

      We believe that the active ingredients, dosage form and strengths of our
A-R Extreme, Osteon, Termin8 and RepiDerm products, each licensed from
BioChemics, are covered by the OTC Review Program and therefore are eligible for
marketing under the OTC Review Program. In addition, we believe the current
labeling of our A-R Extreme, Osteon, and Termin8 products is consistent with FDA
laws and regulations. The labeling of our RepiDerm acne product candidate is not
yet finalized; however, we intend to design the labeling consistent with all
relevant FDA laws and regulations. We will not market RepiDerm until we are
reasonably certain that the final labeling is in accordance with the applicable
OTC Drug Monograph and all other FDA laws and regulations.

      With regard to product candidates that use the VALE transdermal technology
or otherwise require new drug approval, we will seek to secure a partnership
with a larger marketing partner specifically for those products. It is expected
that the actual development work will be done by BioChemics, which will be
required to follow the more extensive regulations imposed by the FDA, including
the NDA requirements, and other regulatory authorities in the United States and
other countries regarding research and development, pre-clinical studies and
clinical trials and ultimately manufacturing of drug products subject to "new
drug" status.

      All of our OTC products and product candidates, whether subject to the OTC
Review Program or NDA requirements, are required to be labeled, promoted, and
manufactured to avoid the misbranding and adulteration provisions of the FFDCA,
including the prohibition against false and misleading representations and
manufacturing in violation of cGMPs.

      ENVIRONMENTAL REGULATION

      In addition to being subject to extensive regulation by the FDA, the
Company must also comply with environmental regulation insofar as such
regulation applies to the Company or its products. Our costs of compliance with
environmental regulation as applied to similar pharmaceutical companies are
minimal, since we do not currently, nor do we intend to, engage in the
manufacturing of any of our products or product candidates. BioChemics uses
unaffiliated manufacturers to manufacture all our products and receive final
products from such manufacturer, without any involvement on our part in the
manufacturing process at any stage of the process. Although we believe that our
safety procedures for using, handling, storing and disposing of our products
comply with the environmental standards required by state and federal laws and
regulations, we cannot completely eliminate the risk of accidental contamination
or injury from these materials. We do not carry a specific insurance policy to
mitigate this risk to us or to the environment. The Company contracts with an
independent laboratory pursuant to standard FDA protocol to test beginning,
middle and end samples, during batch manufacturing, to determine product
compliance with FDA regulations.

                                       11

<PAGE>

      CURRENT PRODUCT LINE

      We presently market three products. Each of these products uses the
PENtoCORE technology. These products are:

      o     OSTEON - an OTC external analgesic designed to provide temporary
            relief from muscular-skeletal pain associated with arthritis;
      o     A-R EXTREME - an OTC external analgesic designed to provide
            temporary relief from muscle and joint pain associated with athletic
            activity; and
      o     TERMIN8 - an OTC antifungal lotion designed to treat athlete's foot.

      We license the Osteon and PENtoCORE trademarks under our license agreement
with BioChemics. We market each of our three current products under the OTC
Review Program, described above under "Government Regulation."

      Our strategy for Osteon is to create, through telemarketing, advertising
and mailing a customer base of senior women and men suffering from
osteoarthritis. We expect re-order sales of Osteon to carry higher gross profit
margins than initial order sales of Osteon because re-order sales should not
require the same direct media advertising expenditures as do the initial order
sales. To achieve future growth, we plan to offer additional products, to be
determined, that fit the demographic of this customer base. We have, however,
suspended our direct-to-consumer television campaigns pending obtaining further
financing or arranging a joint venture with a direct-to-consumer marketing
company. To date we have not obtained further financing or joint venture
arrangements and can not be certain when we may be able to resume this strategy,
if at all. For further information regarding our marketing of Osteon, see
"Distribution" in this section below.

      Our strategy includes achieving market penetration through wholesale
distribution to chain drug and grocery stores for AR-Extreme, Termin8 and, more
recently, Osteon. We began shipping wholesale product under purchase order in
July 2006 to chain drug and grocery stores.

      PRODUCT CANDIDATES

      As described above, the development, testing, manufacture, labeling,
marketing, and promotion of OTC drugs are subject to extensive regulation by the
FDA under the FFDCA and by the FTC under the FTC Act. All of our current
products and product candidates are subject to these extensive regulations.

      In addition to and separate from our products which we are presently
marketing, i.e., our A-R Extreme, Osteon and Termin8 products, we have
identified six additional OTC product candidates that will utilize either the
VALE transdermal or PENtoCORE topical technology. Each of these product
candidates is in various stages of development for us by BioChemics and they are
not yet available for sale.

      With regard to these six product candidates, in instances where the active
ingredient (e.g., ibuprofen), dosage form (e.g., VALE transdermal technology),
strength, route of administration, directions for use or indication (e.g.,
toenail fungus) of the product candidate is not covered by the OTC Review
Program or where the inactive ingredients used in the product candidate are not
recognized as safe and suitable for their intended OTC use, we cannot market the
product candidate without obtaining pre-market approval in either a NDA or an
ANDA. Conversely, where we believe the active ingredient, dosage form, strength,
route of administration, directions for use, and indication of the product
candidate are covered by the OTC Review Program and the inactive ingredients
used in the product candidate are safe and suitable for their intended OTC use,
the product candidate could be marketed without obtaining NDA or ANDA clearance,
provided it conforms to the applicable OTC Drug Monograph and is not otherwise
adulterated or misbranded. You should refer to the information described under
the caption "Government Regulation" for further discussion surrounding NDA,
ANDA, OTC Review Program and OTC Drug Monograph programs.

      The table below describes our six product candidates and the status of
each product: The further development of our product candidates, and our ability
ultimately to bring these candidates to market, will depend upon, among other
factors, our ability to obtain additional working capital from third parties and
the extent to which our efforts to market our existing products result in cash
flow from sales. To date we have not obtained additional working capital from
third parties and cash flows from our existing products have not been
significant. Accordingly, our ability to ultimately bring any of these product
candidates to market during 2007 is in question at the present time.

                                       12

<PAGE>
<TABLE>
<S>                                                                             <C>
PRODUCT CANDIDATE                      TECHNOLOGY                      PRE-MARKET APPROVAL      CURRENT STAGE OF
                                                                       REQUIRED? (A)            DEVELOPMENT
----------------------------------------------------------------------------------------------------------------------------
1)  Acne Treatment                     Proprietary PENtoCORE           No                       Formula finalized.
                                       topical                                                  Undergoing package
                                                                                                design and branding.
2)  Analgesic utilizing ibuprofen      Patented VALE Transdermal       Yes                      Pre-clinical testing and
                                                                                                research (including
                                                                                                formulation development)
3)  Other OTC Drug Monograph           Proprietary PENtoCORE           No                       Formulation development
Product Candidates:                    topical
3.1)  First aid treatments
3.2)  Hand and body lotions
3.3)  Psoriasis treatment
4)  Toenail fungus treatment           Proprietary PENtoCORE           Yes                      Formulation development
                                       topical
</TABLE>

      a)    This represents management's belief based upon its current plans and
            assumptions and on its interpretation of government rules and
            regulations now in effect. Whether pre-market approval will actually
            be required is uncertain.

1)    ACNE TREATMENT

      We have finalized a formulation of our acne treatment candidate utilizing
our PENtoCORE topical technology. The product would contain 10% benzoyl
peroxide, or BPO, as an active ingredient. Although there is a final OTC Drug
Monograph for acne drug products, it does not currently include BPO as an active
ingredient. In a proposed rule, however, FDA has stated that topical acne
products containing BPO at levels of 2.5 to 10 percent may be marketed pending
publication of a final rule relating to BPO subject to certain conditions,
described below.

      In its proposed Monograph for OTC acne drug products, the FDA included BPO
as an acceptable active ingredient. However, following this proposal, the agency
became aware of a study that raised a safety concern regarding BPO. FDA
evaluated this study and other data submitted by a drug manufacturer association
and, in 1991, the agency concluded that it was unable to state that BPO is
generally recognized as safe in topical acne products. Accordingly, FDA amended
its proposed monograph for OTC topical acne drug products to reclassify BPO from
Category I (generally recognized as safe and effective and not misbranded) to
Category III (available data are insufficient to classify as safe and effective,
and further testing is required).

      Nevertheless, in 1995 FDA stated that the marketing under the OTC review
program of BPO as an active ingredient in topical OTC acne drug products would
be allowed to continue under the conditions set forth in the proposed monograph
(e.g., BPO at levels of 2.5 to 10 percent) while additional studies are
conducted to answer the unresolved safety questions. The agency also tentatively
determined that consumers who choose to use products containing BPO need to be
provided additional information about the safe use of such products. These
required label statements include a warning advising consumers to avoid
unnecessary sun exposure and to use a sunscreen when using a BPO product to
treat acne. There are numerous OTC acne treatment products containing 10% BPO
that are currently being marketed under the OTC Review Program.

      We believe that the active ingredients, dosage form, route of
administration, directions for use, and indications of our acne treatment
candidate are covered by the OTC Review Program and, like similarly situated
products on the market, can at this time be marketed under the OTC Review
Program. Subject to the availability of additional working capital, we plan to
begin to market our acne treatment product candidate. However, given capital
constraints, we are uncertain whether or when we will be able to launch this
product.

2)    ANALGESIC UTILIZING IBUPROFEN

      We have suspended the preclinical phase of development for our ibuprofen
product candidate. Our ability to file an IND for the ibuprofen product
candidate is contingent upon (i) whether we successfully negotiate with
BioChemics to amend our license agreement to include our ibuprofen candidate;
and (ii) our obtaining additional capital in an amount sufficient to conduct
clinical testing for our ibuprofen candidate.

                                       13

<PAGE>

      The scope of our license agreement with BioChemics presently is limited to
OTC products costing less than $1,000,000 to develop. We expect the ibuprofen
product candidate to cost more than $1,000,000 to develop. Although we are
hopeful that we will eventually successfully conclude our negotiations with
BioChemics in connection with our ibuprofen candidate, there is no guarantee
that we will be successful. We have instructed BioChemics to suspend research
and development, on our behalf, of our ibuprofen product candidate pending the
outcome of these negotiations and obtaining funds to pay for the cost of the
clinical testing.

3)    OTHER OTC DRUG MONOGRAPH PRODUCT CANDIDATES

      We have a number of formulas under development for us by BioChemics for
each of these product candidates. None of the formulas have been finalized.
Subject to the availability of additional working capital, we plan to finalize
three new product candidates in this category. However our ability launch those
three product candidates within their applicable OTC Drug Monograph is uncertain
at the present time due to capital constraints. In response to changing market
demands, we may seek to have products developed for us which address conditions
other than those indicated in the table above. In any such instance, we intend
that the product would be within the applicable OTC Drug Monograph.

4)    TOENAIL FUNGUS

      We are in the formulation development stage of our toenail fungus product
candidate. We expect this product candidate will require pre-market approval.
Based upon our current plans, we do not expect to devote substantial resources
during 2006 for this product candidate

DISTRIBUTION

      On July 20, 2005, we entered into our exclusive brokerage agreement with
ESM to sell all of Vaso Active's products across all classes of retail trade in
the continental United States. ESM is a full-service sales, marketing and
merchandising agency that provides comprehensive services for consumer packaged
goods manufacturers in various product categories, including food, drug,
specialty and private label.

      In the first quarter of 2006 we shifted our marketing emphasis to the New
York City metropolitan and New Jersey markets to support our anticipated initial
retail product launch in those markets. We intend to resume the
direct-to-consumer pay-per-unit of sale arrangement pending further financing or
entering into a joint venture with a direct-to-consumer marketing agency. There
can be no assurance that we will be able to obtain further financing or to enter
into a joint venture arrangement.

      During 2006 the Company commenced wholesale distribution under purchase
order to chain drug and grocery stores. At April 10, 2007 products are being
distributed through eight drug and grocery chains totaling more than 1,000
retail stores plus 120 independent pharmacies. In addition our products have
recently become available for purchase on Amazon.com, AmericaRX.com,
HarmonDiscount.com, and AlleonPharmacy.net. Online sales have not been
significant to date.

COMPETITION

      We are engaged in a rapidly evolving field. If our product distribution
and commercial marketing efforts take full effect, we expect to compete
primarily with established pharmaceutical companies such as Pfizer Inc.,
Bristol-Myers Squibb Company, Schering-Plough Corporation Alza Corporation, and
emerging biotechnology companies like Cygnus, Inc. and Elan Corporation plc, as
well as research and academic institutions, and others. Competition is intense
and expected to increase.

      The large and rapidly growing market for transdermal and topical drug
delivery systems is likely to attract new entrants. Numerous biotechnology and
pharmaceutical companies are focused on developing new drug delivery systems and
most, if not all, of these companies have greater financial and other resources
and development capabilities than we do. Our competitors also have greater
collective experience in undertaking pre-clinical and clinical testing of
products, obtaining regulatory approvals and manufacturing and marketing OTC and
prescription pharmaceutical products. Accordingly, certain of these competitors
may succeed in obtaining approval for products more rapidly than us. In addition
to competing through the development efforts of BioChemics on our behalf with
universities and other research institutions in the development of products,
technologies and processes, we may compete with other companies in acquiring
rights to products or technologies from universities. There can be no assurance
that our products or product candidates will be more effective or achieve
greater market acceptance than competitive products, or that these companies
will not succeed in developing products and technologies that are more effective
than those being developed for us or that would render our products and
technologies less competitive or obsolete.

                                       14

<PAGE>

      This may allow our competitors to imitate or reverse engineer our current
products and use their greater manufacturing and marketing resources to rapidly
promulgate competing versions. We believe that competing topical and transdermal
delivery technologies using patches, liposomes, and equipment-assisted
deliveries such as iontophoresis and sonophoresis have some utility with a small
group of select drugs. Our success will depend on our ability to leverage the
PENtoCORE and VALE technologies to achieve market share at the expense of our
existing and future competitors who we believe cannot offer products utilizing a
delivery system of comparable performance characteristics.

      In addition to competing with newly developed drug delivery systems, we
will compete with existing products which address the same medical conditions as
our products and product candidates.

      For instance, our Termin8 athlete's foot product would compete with
Tinactin(R) and Lotrimin(R), while our pain relief products and product
candidates would compete with Advil(R) and Tylenol(R). These and other brands
are already offering different delivery systems. For instance, Pfizer's Ben
Gay(R) is now offered in a patch as well as a cream. These products are
manufactured, distributed and marketed by companies with vastly greater
resources than our own. There is no guarantee we will be able to achieve
widespread market acceptance for our products, or that our marketing efforts
will be successful in distinguishing our products from those of established
market participants.

EMPLOYEES

      At March 30, 2007, we employed eight persons. Four of the eight persons
are employed full time by us. One officer, our Vice President and Chief
Scientific Officer, devotes substantially all of his time to us but is also
employed by Biochemics. Our former Chief Executive Officer devotes approximately
70% of his time to us and 30% of his time to BioChemics. One other individual
splits her time equally between our company and BioChemics. In addition, we
employed one administrative person on a part-time basis. We do not have a
collective bargaining agreement with our employees; nor are any of our employees
members of any labor union.

RISK FACTORS

                          RISKS RELATED TO OUR BUSINESS

WE HAVE INSUFFICIENT CASH FLOW TO FUND OUR OPERATIONS AND TO MEET OUR DEBT
OBLIGATIONS WHICH RAISES SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A
GOING CONCERN.

      Our cash and cash equivalents totaled less than $10,000 as of April 10,
2007. We will need to raise approximately $3,000,000 in additional funds through
a financing or otherwise by May 1, 2007 to pay the principal amount due on the
senior secured convertible notes issued in August 2005. The principal amount of
the notes ($2,500,000) is due on May 1, 2007. If the principal amount is not
repaid on that date, then the lender of the notes may seek to foreclose on our
assets, liquidate us, or have us declared insolvent. In addition, as noted
above, we have incurred substantial indebtedness in connection with various
litigation settlements. We have incurred net losses in the past, and we may not
be able to repay our existing debt obligations if we are unable to refinance or
otherwise repay the notes.

      Our recurring operating losses, liquidity issues, and indebtedness raise
substantial doubt about our ability to continue as a going concern. Our ability
to continue as a going concern and the appropriateness of using the going
concern basis of accounting depends upon, among other things, our ability to
generate sufficient cash from operations and financing sources to meet
obligations. There can be no assurance that we will be able to generate positive
cash flows from operations. Further, there can be no assurance that we will be
able to obtain additional financing or that, even if we do obtain additional
financing, it will be on terms that allow us to meet our current obligations.

      Concern about our ability to meet our debt obligations could also
negatively affect our ability to attract and retain customers. Our ability to
meet our future debt obligations will be dependent upon our future performance,
which will be subject to financial, business and other factors affecting our
operations, many of which are beyond our control.


                                       15

<PAGE>

WE ARE AN EARLY STAGE COMPANY WITH A BRIEF HISTORY CONSISTING OF LOSSES AND MAY
NEVER ACHIEVE OR SUSTAIN PROFITABILITY.

      We do not have any continuing revenues and we have never been profitable
and we may not achieve profitability in the foreseeable future, if at all. Our
ability to generate profits in the future will depend on a number of factors,
including:

      o     start-up costs relating to the commercialization, sale and marketing
            of our products;
      o     market acceptance of our products and product candidates;
      o     costs of acquiring and developing new product candidates;
      o     ability to bring our products to market;
      o     general and administrative costs relating to our operations;
      o     increases in our research and development costs;
      o     charges related to purchases of technology or other assets; and
      o     our ability to raise additional capital.

      At December 31, 2006, we had an accumulated deficit of approximately $13.5
million. We expect to incur additional operating losses as we expand our
commercialization, marketing, and sales efforts. If we are unable to generate
sufficient revenue from our operations to pay expenses or we are unable to
obtain additional financing on commercially reasonable terms, our business,
financial condition and results of operations may be materially and adversely
affected.

WE ARE AN EARLY STAGE COMPANY THAT HAS A LIMITED OPERATING HISTORY. THEREFORE
OUR BUSINESS OPERATIONS MAY NEVER FULLY MATERIALIZE AND CREATE VALUE FOR
INVESTORS.

      We are an early stage company focused on commercializing, marketing and
selling OTC pharmaceutical products. We began our operations as a division of
BioChemics in January 2001. We have operated as a separate subsidiary of
BioChemics since January 2003. Our Termin8, A-R Extreme and Osteon products are
in the early stages of commercialization. One of our product candidates,
RepiDerm, has undergone preliminary package design; the remainder of our product
candidates are only in the early stages of development. We have not yet
recognized significant revenue from product sales. You should evaluate the
likelihood of financial and operational success in light of the uncertainties
and complexities present in an early-stage company, many of which are beyond our
control, including:

      o     our potential inability to market, distribute and sell our products;
            and
      o     the significant investment of capital and other resources necessary
            to achieve our commercialization, marketing and sales objectives.

      Our operations have been limited to organizing and staffing our company
and marketing our products. These operations provide a limited basis for you to
assess our ability to commercialize our products and product candidates and the
advisability of investing in us.

OUR INDEBTEDNESS COULD HAVE A NEGATIVE EFFECT ON OUR FINANCIAL CONDITION

      In August 2005, we completed a private placement of $2,500,000 in
aggregate principal amount of Senior Secured Convertible Notes due May 1, 2007.
Principal is to be paid in a single payment on May 1, 2007 (interest will be
paid from proceeds of the private placement that were placed in escrow at
closing). In addition, the purchasers of the notes received rights to purchase
up to $1,875,000 in aggregate principal amount of additional notes at any time
through the maturity date of the notes. We also have incurred substantial
indebtedness (subordinated to the notes and all of our other indebtedness) as we
are obligated to issue convertible notes in the aggregate principal amount of
$870,000 in connection with the settlement of a consolidated class action
lawsuit and derivative actions involving the Company. Of that amount, we have
already issued settlement notes in the aggregate principal amount of $297,500 to
date to plaintiffs' class action and derivative counsel. We expect to issue the
balance of the aggregate principal amount of these settlement notes to the class
action claimants. Our substantial indebtedness could have important consequences
for investors. For example, it could:

      o     require the dedication of a substantial portion of our cash flows
            from operations, if any, to the payment of principal of and interest
            on our indebtedness, thereby reducing the availability of capital to
            fund our operations, working capital, capital expenditures,
            acquisitions and other general corporate purposes;

                                       16

<PAGE>

      o     increase our vulnerability to general adverse economic and industry
            conditions;
      o     place us at a competitive disadvantage relative to our competitors;
      o     limit our ability to obtain additional financing;
      o     limit our flexibility in planning for, or reacting to, changes in
            our business and the industry; and
      o     decrease customer and potential customer confidence in dealing with
            us.

      We may incur substantial additional debt in the future. While the terms of
the notes issued in the August 2005 private financing impose certain limits on
our ability to incur additional debt, we are permitted to incur additional debt
subject to compliance with the terms and conditions set forth in the Securities
Purchase Agreement for in the August 2005 financing. If a significant amount of
new debt is added to our current levels, the related risks described above could
intensify.

OUR FAILURE TO COMPLY WITH EXTENSIVE GOVERNMENT REGULATION MAY SIGNIFICANTLY
AFFECT OUR OPERATING RESULTS.

      Our products are subject to extensive regulation by the FDA, as well as
other federal, state, local and foreign government laws and regulations. These
regulations may affect many aspects of our operations, including testing,
research and development, manufacturing, pre-market labeling, storage, quality
control, adverse event reporting, record keeping, product labeling, marketing,
advertising and promotion. Failure to comply with applicable regulatory
requirements could, among other things, result in:

      o     fines;
      o     changes to advertising;
      o     failure to obtain necessary marketing approvals;
      o     revocation or suspension of regulatory approvals of products;
      o     regulatory letters;
      o     adverse publicity;
      o     product seizures or recall;
      o     delay, interruption or suspension of product manufacturing;
      o     suspension of distribution, marketing and sale;
      o     mandated corrective action; and
      o     civil or criminal sanctions.

      The discovery of previously unknown problems with our initial and future
products may result in the interruption of marketing, including withdrawal from
the market. In addition, the FDA may revisit and change any prior determination
relating to the safety or efficacy of our products. If circumstances change, we
may be required to change our labeling or cease the marketing and manufacturing
of the product or products at issue. Even prior to any formal regulatory action,
we could voluntarily decide to cease the distribution and sale or recall any of
our future products if concerns about their safety or efficacy develop.

      In addition to safety and efficacy regulatory concerns, the FDA or the FTC
may impose a wide array of sanctions on companies for deceptive or misleading
promotional practices in connection with pharmaceutical products, which could
result in any of the following:

      o     incurring substantial expenses, including fines, penalties, legal
            fees and costs to comply with FDA or FTC requirements;
      o     changing the methods of marketing and selling products;
      o     taking mandated corrective action, which may include placing
            advertisements or sending letters to physicians and marketing
            partners rescinding previous advertisements or promotions;
      o     disrupting the distribution of products and causing the loss of
            sales until compliance with the FDA's or FTC's position occurs;
      o     the FTC's initiating administrative action for consumer redress;
      o     the FTC's seeking a court injunction to prevent further false and
            misleading advertising;
      o     the imposition by a court of liquidated damages and equitable relief
            to recover profits and provide consumer redress from illegal
            activity; and
      o     the placing of the Company in receivership to assure that the assets
            of the Company are not dissipated pending resolution of FTC claims.

                                       17

<PAGE>

      If we become subject to any of the above requirements, it could be
damaging to our reputation, and our business condition could be adversely
affected.

IN ADDITION TO LISTING OUR PRODUCTS WITH THE FDA, WE MUST MARKET OUR PRODUCTS IN
ACCORDANCE WITH FDA PROCEDURES.

      If our topical A-R Extreme, Osteon and Termin8 products are formulated,
labeled and promoted in accordance with the applicable requirements of FDA's OTC
Review Program (e.g., the applicable final or tentative final OTC Drug
Monograph), FDA pre-market approval is not required prior to marketing. If these
or any of our product candidates deviate from any applicable requirement of the
OTC Review Program, including those relating to active ingredients, intended
use, method of administration, dosage form, or labeling, among other things,
then we or our marketing partners must obtain NDA pre-market approval from the
FDA before beginning commercial marketing. The FDA has taken the position that
insofar as our product candidates may use the VALE transdermal technology or
make any transdermal claims, they fall outside of those eligible for marketing
under the OTC Review Program. Thus, for these product candidates we must obtain,
or our marketing partners must obtain, NDA approval before they can be
commercially marketed. See "Governmental Regulation - The NDA Review Process."

CLINICAL TRIALS MAY FAIL TO DEMONSTRATE THE SAFETY AND EFFICACY OF OUR PRODUCT
CANDIDATES AND COULD PREVENT OR SIGNIFICANTLY DELAY REGULATORY APPROVAL.

      Before receiving NDA approval to commercialize a product candidate, we
must demonstrate to the FDA, with substantial evidence from well-controlled
clinical trials, that the product candidate is both safe and effective. If these
trials or future clinical trials are unsuccessful, our business and reputation
would be harmed and our stock price would most likely be adversely affected.

      All of our product candidates are prone to the risks of failure. The
results of early-stage clinical trials of our product candidates will not
necessarily predict the results of later-stage clinical trials. Product
candidates in later-stage clinical trials may fail to show desired safety and
efficacy traits, despite having progressed through initial clinical testing.
Even if we believe the data collected from clinical trials of our product
candidates are promising, these data may not be sufficient to obtain approval
from the FDA or other regulators. Preclinical and clinical data can be
interpreted in different ways. Accordingly, FDA or other regulatory officials
could interpret such data in different ways than we do which could delay, limit
or prevent regulatory approval. The FDA, other regulatory authorities, or we may
suspend or terminate clinical trials at any time. Any failure or significant
delay in completing clinical trials for our product candidates, or in receiving
regulatory approval for the sale of resulting products, may severely harm our
business and reputation.

      Because of these risks, the research and development efforts of our
collaborative partners may not result in any commercially viable products. If a
significant portion of these development efforts is not successfully completed,
required regulatory approvals are not obtained by our partners, or any approved
products are not commercially successful, we are not likely to generate
significant revenues or become profitable.

PROVISIONS IN OUR BYLAWS PROVIDE FOR INDEMNIFICATION OF OFFICERS AND DIRECTORS,
WHICH COULD REQUIRE US TO DIRECT FUNDS AWAY FROM OUR BUSINESS OPERATIONS.

      Our bylaws provide for the indemnification of our officers and directors.
We may be required to advance costs incurred by an officer or director and to
pay judgments, fines and expenses incurred by an officer or director, including
reasonable attorneys' fees, as a result of actions or proceedings in which our
officers and directors are involved by reason of being or having been an officer
or director of the Company. Funds paid in satisfaction of judgments, fines and
expenses may be funds we need for the operation of our business,
commercialization of our current products and the development of our product
candidates, thereby affecting our ability to attain profitability.

BECAUSE WE DEPEND ON BIOCHEMICS AND THIRD PARTIES TO DEVELOP OUR PRODUCT
CANDIDATES AND MANUFACTURE OUR PRODUCTS, WE COULD BE AFFECTED ADVERSELY IF ANY
OF THEM FAIL TO PROVIDE US WITH SUFFICIENT PRODUCT QUANTITIES AT ACCEPTABLE
PRICES.

      We do not possess product development capability. As a result, we depend
on collaborations with third parties, such as BioChemics, for development of our
product candidates. During the years ended December 31, 2006 and 2005, we
incurred research and development costs of approximately $4,900 and $342,500,
respectively, related package design testing during 2006 and primarily to the
formulation of an analgesic utilizing the active ingredient ibuprofen as well as
formulation of our RepiDerm acne product candidate during 2005. We incurred
these costs pursuant to a February 2003 manufacturing and development agreement
with BioChemics.

                                       18

<PAGE>

      In addition, we have no manufacturing capability. As a result, we depend
on BioChemics, which in turn will rely upon third parties to manufacture our
products. Although our strategy is based on leveraging BioChemics' ability to
develop and manufacture our products for commercialization in the OTC
marketplace, we will be dependent on BioChemics' collaborations with drug
development and manufacturing collaborators. If we and BioChemics are not able
to maintain existing collaborative arrangements or establish new arrangements on
commercially acceptable terms, we would be required to undertake product
manufacturing and development activities at our own expense. This would increase
our capital requirements or require us to limit the scope of our development
activities. Moreover, we have limited or no experience in conducting full scale
bioequivalence or other clinical studies, preparing and submitting regulatory
applications, and manufacturing and marketing drug products. There can be no
assurance that we will be successful in performing these activities and any
failure to perform such activities could have a material adverse effect on our
business, financial condition and results of our operations.

      If any of our developmental collaborators, especially BioChemics, breach
or terminate their agreements with us or otherwise fail to conduct their
collaborative activities in a timely manner, the preclinical and/or clinical
development and/or commercialization of our product candidates will be delayed,
and we would be required to devote additional resources to product development
and commercialization or terminate certain development programs. Also, these
relationships generally may be terminated at the discretion of our
collaborators, in some cases with only limited notice to us. The termination of
collaborative arrangements could have a material adverse effect on our business,
financial condition and results of operations. There also can be no assurance
that disputes will not arise with respect to the ownership of rights to any
technology developed with third parties. These and other possible disagreements
with collaborators could lead to delays in the development or commercialization
of our product candidates or could result in litigation or arbitration, which
could be time consuming and expensive and could have a material adverse effect
on our business, financial condition and results of operations.

      Additionally, the failure of any of our contract manufacturers to
manufacture our products in conformity with cGMPs required by the FDA and other
regulatory authorities could result in interruption or halt of the availability
of our products, pending demonstration to the FDA or a court of compliance with
CGMPs. Any such interruption in the availability of our products could have a
material adverse impact upon our financial position and results of operations.

IF WE OR BIOCHEMICS FAIL TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL
PROPERTY RIGHTS, WE MAY BE UNABLE TO OPERATE EFFECTIVELY.

      BioChemics owns proprietary technology developed in connection with its
four U.S. patents. In addition, foreign patents have been issued to BioChemics
in 17 foreign countries and are pending in seven others. The PENtoCORE
technology is not covered by patents but is considered proprietary. BioChemics
also owns 16 registered trademarks, including Osteon, RepiDerm and PENtoCORE.
Our license agreement, as amended, with BioChemics permits us to commercialize,
market and sell our products and product candidates using these patents,
proprietary formulations and the Osteon and PENtoCORE trademarks. Our success
and ability to compete are substantially dependent on these patents, proprietary
formulations and trademarks. Although both we and BioChemics believe that the
patents and associated trademarks and licenses are valid, there can be no
assurance that they will not be challenged and subsequently invalidated and/or
canceled. The invalidation or cancellation of any one or all of the patents or
trademarks would significantly damage our commercial prospects. Further,
BioChemics may find it necessary to legally challenge parties infringing its
patents or trademarks or licensed trademarks to enforce its rights thereto.
There can be no assurance that any of the patents would ultimately be held valid
or that efforts to defend any of the patents, trade secrets, know-how or other
intellectual property rights would be successful.

IF WE INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, OUR BUSINESS AND
PROFITABILITY MAY BE ADVERSELY AFFECTED.

      Our commercial success will also depend, in part, on us and BioChemics not
infringing on the patents or proprietary rights of others. There can be no
assurance that the technologies and products used or developed by BioChemics and
marketed and sold by us will not infringe such rights. If such infringement
occurs and neither we nor BioChemics is able to obtain a license from the
relevant third party, we will not be able to continue the development,
manufacture, use, or sale of any such infringing technology or product. There
can be no assurance that necessary licenses to third-party technology will be
available at all, or on commercially reasonable terms. In some cases, litigation
or other proceedings may be necessary to defend against or assert claims of
infringement or to determine the scope and validity of the proprietary rights of
third parties. Any potential litigation could result in substantial costs to,
and diversion of, our resources and could have a material and adverse impact on
us. An adverse outcome in any such litigation or proceeding could subject us
and/or BioChemics to significant liabilities, require us to cease using the
subject technology or require us and/or BioChemics to license the subject
technology from the third party, all of which could have a material adverse
effect on our business.

                                       19

<PAGE>

WE OPERATE IN AN EXTREMELY COMPETITIVE ENVIRONMENT AND THERE CAN BE NO
ASSURANCES THAT COMPETING TECHNOLOGIES WOULD NOT HARM OUR BUSINESS DEVELOPMENT.

      We are engaged in a rapidly evolving field. Competition from numerous
pharmaceutical companies including Pfizer, Bristol-Myers Squibb, Schering-Plough
and Alza and biotechnology companies such as Cygnus and Elan, as well as
research and academic institutions, is intense and expected to increase. The
large and rapidly growing market for transdermal and topical drug delivery
systems is likely to attract new entrants. Numerous biotechnology and
pharmaceutical companies are focused on developing new drug delivery systems and
most, if not all, of these companies have greater financial and other resources
and development capabilities than we do. Our competitors also have greater
collective experience in undertaking pre-clinical and clinical testing of
products, obtaining regulatory approvals and manufacturing and marketing OTC and
prescription pharmaceutical products. There can be no assurance that our
products, existing or to be developed, will be more effective or achieve greater
market acceptance than competitive products, or that our competitors will not
succeed in developing products and technologies that are more effective than
those being developed by us or that would render our products and technologies
less competitive or obsolete. See "Competition."

TECHNOLOGICAL ADVANCEMENTS BY OUR COMPETITORS COULD RESULT IN THE OBSOLESCENCE
OF SOME OR ALL OF OUR PRODUCTS AND MAY HARM BUSINESS DEVELOPMENT.

      The areas in which we are commercializing, distributing, and/or selling
products involve rapidly developing technology. There can be no assurance that
we will be able to establish ourselves in such fields, or, if established, that
we will be able to maintain our position. There can be no assurance that the
development by others of new or improved products will not make our products and
product candidates, if any, superfluous or our products and product candidates
obsolete.

SHOULD PRODUCT LIABILITY CLAIMS BE BROUGHT SUCCESSFULLY AGAINST US EXCEEDING THE
PRODUCT LIABILITY COVERAGE WE CURRENTLY HAVE IN PLACE, THERE CAN BE NO
ASSURANCES THAT SUCH EVENTS WOULD NOT MATERIALLY IMPACT OUR PERFORMANCE AND
VIABILITY.

      The sale of our products may expose us to potential liability resulting
from the sale and use of such products. Liability might result from claims made
directly by consumers or by pharmaceutical companies or by others selling such
items. We currently maintain $5 million of product liability insurance. There
can be no assurance that we will be able to renew our current insurance, renew
it at a rate comparable to what we now pay, or that the coverage will be
adequate to protect us against liability. If we were held liable for a claim or
claims exceeding the limits of our current or future insurance coverage, or if
coverage was discontinued for any reason, it could have a materially adverse
effect on our business and our financial condition.

OUR LIMITED SALES AND MARKETING EXPERIENCE MAY ADVERSELY IMPACT OUR ABILITY TO
SUCCESSFULLY COMMERCIALIZE AND SELL OUR PRODUCTS.

      We have limited sales and marketing experience, particularly with respect
to marketing and selling products in commercial quantities. If we are unable to
expand our sales and marketing capabilities we may not be able to effectively
commercialize our products and product candidates.

IF WE ARE UNABLE TO EFFECTIVELY PROMOTE OUR BRAND AND ESTABLISH A LEADING
POSITION IN THE MARKETPLACE, OUR BUSINESS MAY FAIL.

      Our brand names are new and unproven. If we are unable to effectively
promote our brands and establish a prominent position in the marketplace, our
operations will suffer. We believe that the importance of brand recognition will
increase over time. In order to gain brand recognition, we may increase our
marketing and advertising budgets to create and maintain brand loyalty. We do
not know whether these efforts will lead to greater recognition.

WE DEPEND ON BIOCHEMICS TO PROVIDE US WITH CERTAIN SUPPORT AND SERVICES. THE
LOSS OF SUCH SUPPORT AND SERVICES WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS.

                                       20

<PAGE>

      We were originally formed as a division of BioChemics and the viability
and financial strength of BioChemics is critical to our success. Throughout our
development, we have relied on services and financing provided to us by
BioChemics. When we became an independent operating entity, we entered into a
license agreement and, prior to the consummation of our initial public offering,
a manufacturing and development agreement with BioChemics. We presently maintain
our executive offices on premises that we share with BioChemics. We do not have
a lease agreement with BioChemics. We believe that we can obtain suitable
alternative space without any material disruption of our business and that such
space will be available to us in the future on commercially reasonable terms.
Since, pursuant to the administrative support agreement by and between the
Company and BioChemics, BioChemics provides us with administrative and
managerial support, our results of operations include allocations of certain
BioChemics expenses, such as centralized accounting, data processing, utilities,
supplies, telephone and other BioChemics corporate services and infrastructure
costs. These expenses have been charged back to us as a management fee. We
recorded approximately $46,000 in such fees during each of the years ended
December 31, 2006 and 2005. These costs are included in selling, general and
administrative expenses. The expense allocations have been determined on the
basis that we and BioChemics consider to be reasonable reflections of the
utilization of services provided for the benefit received by us. The loss of the
services provided by BioChemics or the loss of the license of the VALE patents
or the PENtoCORE technology under the license agreement would have a material
adverse effect on our business, financial condition and results of operations.

      BioChemics has never been profitable and most likely will not achieve
profitability in the near future, if ever. Although BioChemics was founded in
1989, and incorporated in 1991, it is still a development stage company. It has
generated significant losses through December 31, 2006, has limited revenue, and
is likely to sustain operating losses in the foreseeable future. BioChemics'
operations are subject to all of the risks inherent in the establishment of a
business enterprise. Through December 31, 2006, BioChemics had an unaudited,
consolidated accumulated deficit of approximately $24.8 million, which includes
the operations of Vaso Active. In addition, as of December 31, 2006, BioChemics
was in default under debt obligations in the approximate amount of $11.0
million, which includes accrued interest, that it has issued to private
investors. Approximately $6.5 million of BioChemics' debt, inclusive of accrued
interest, is held by Mr. Masiz, members of his family and Robert E. Anderson
(the Chairman of our Board of Directors who is also a member of the Board of
Directors of BioChemics). Although BioChemics is attempting to restructure or
refinance these obligations, there can be no assurance that it will be able to
do so on acceptable terms. If BioChemics is not successful in maintaining its
financial viability, our business, financial condition and results of operations
may be materially and adversely affected. BioChemics anticipates that it will
continue to incur net losses and be unprofitable for the foreseeable future.
There can be no assurance that BioChemics will ever operate at a profit even if
its or our products are commercialized.

      In addition, it is expected that BioChemics will encounter significant
marketing difficulties and will also face significant regulatory hurdles. The
likelihood of success of BioChemics must be considered in light of the problems,
expenses, difficulties, complications and delays frequently encountered in
connection with any non-profitable business enterprise, including but not
limited to the identification and development of new products, difficulties with
corporate partners, vendors, and a very competitive environment. Additionally,
BioChemics itself requires additional capital and/or revenues to continue its
operations and there is no guarantee that it will be able to fund its own
operations or those of Vaso Active.

IF WE FAIL TO ATTRACT, TRAIN AND RETAIN ADDITIONAL HIGHLY QUALIFIED SENIOR
EXECUTIVES AND TECHNICAL AND MANAGERIAL PERSONNEL IN THE NEAR FUTURE, OUR
BUSINESS WILL SUFFER.

      Effective as of August 17, 2004 and in accordance with the terms of the
SEC settlement, Mr. John J. Masiz resigned as President and Chief Executive
Officer of Vaso Active. Vaso Active appointed its current Chief Financial
Officer, Joseph Frattaroli, to serve as President and acting Chief Executive
Officer.

      Effective June 18, 2004, Kevin J. Seifert resigned as the Chief Operating
Officer and director of Vaso Active. Vaso Active is not currently conducting a
search for a new Chief Operating Officer.

      Several of our other key employees are devoting less than all their time
to the Company. For example, although our Chief Scientific Officer, Dr. Stephen
Carter, devotes substantially all his time to our activities, he is also
devoting a portion of his time to Biochemics. For us to pursue our product
development, marketing and commercialization plans, we will need to hire
personnel with experience in clinical testing, government regulation,
manufacturing, marketing and finance.

      We may not be able to attract and retain personnel on acceptable terms
given the intense competition for such personnel among high technology
enterprises, including biotechnology, pharmaceutical and healthcare companies,
universities and non-profit research institutions. If we lose any of these
persons, or are unable to attract and retain qualified personnel, our business,
financial condition and results of operations may be materially and adversely
affected.

                                       21
<PAGE>

BECAUSE OUR PRESIDENT ALSO SERVES AS OUR ACTING CHIEF EXECUTIVE OFFICER, CHIEF
FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER, WE HAVE LIMITED SENIOR
MANAGEMENT FOR STRATEGIC PLANNING AND GROWTH.

      Our President, Joseph Frattaroli, also serves as our acting Chief
Executive Officer, Chief Financial Officer and principal accounting officer.
Though corporate executives often serve in multiple positions, these positions
are typically the most senior positions in many companies. We may have
difficulty executing our business plan and accommodating growth as a result of
one individual's holding these demanding positions.

IN THE EVENT OF A CONFLICT OF INTEREST BETWEEN BIOCHEMICS AND VASO ACTIVE, OUR
STOCKHOLDERS COULD BE NEGATIVELY AFFECTED.

      There are likely to be situations where our best interests and those of
BioChemics will be in conflict. For example, we are a party to a license
agreement, a manufacturing and development agreement and an administrative
services agreement with BioChemics, each of which is critical to our business
operations. If Mr. Masiz decides to favor BioChemics in dealings between
BioChemics and us or is not sensitive to conflicts of interest, our business
could suffer.

                       RISKS RELATING TO OUR COMMON STOCK

MR. MASIZ IS THE MAJORITY STOCKHOLDER OF BIOCHEMICS, WHICH IS OUR PRINCIPAL
STOCKHOLDER. HE HAS SUBSTANTIAL ULTIMATE CONTROL OVER THE COMPANY, POSSIBLY TO
THE DETRIMENT OF OTHER HOLDERS OF OUR CLASS A COMMON STOCK.

      Our principal stockholder, BioChemics, owns 4,500,000 shares of our Class
B Common Stock, which at December 31, 2006 represented approximately 70% of the
combined voting power of our common stock. Mr. Masiz, as President, Chief
Executive Officer and Chairman of BioChemics and, as the principal stockholder
in BioChemics, will be able to control the outcome of many types of stockholder
votes, including votes concerning the election of our directors, the adoption or
amendment to provisions in our certificate of incorporation or by-laws, the
approval of mergers and/or acquisitions, decisions affecting our capital
structure and other significant corporate transactions. This concentration of
ownership may delay, deter or prevent transactions that would result in a change
of control, which in turn could reduce the value of our common stock.

INVESTORS MAY EXPERIENCE SUBSTANTIAL DILUTION OF THEIR INVESTMENT.

      In the past and more recently, we have issued convertible notes, options
and warrants to acquire Class A Common Stock. These securities include the
$2,500,000 aggregate principal amount of senior secured convertible notes that
we issued in August 2005 and the warrants which we issued to the purchasers of
the notes. We also issued an additional 100,000 warrants to those investors for
extending deadlines with respect to filing the registration statement for the
shares of Class A Common Stock underlying their investment as well as possible
additional investment. We will also be issuing convertible notes in connection
with our recent litigation settlements. To the extent these outstanding
securities are ultimately exercised, there will be dilution to investors.
Investors may experience further dilution of their investment if we raise
capital through the sale of additional equity securities or convertible debt
securities, such as the rights to purchase additional notes and warrants granted
to the August 2005 investors. Any sales in the public market of the Class A
Common Stock issuable upon such conversion could adversely affect prevailing
market prices for our common stock.

THERE IS NO ORGANIZED MARKET FOR OUR STOCK; OUR STOCK PRICE HAS BEEN VOLATILE
AND COULD EXPERIENCE SUBSTANTIAL DECLINES.

      Our securities are currently quoted in the OTC Bulletin Board under the
trading symbol "VAPH.OB." The market price of our common stock has experienced,
and may continue to experience, significant volatility. From January 1, 2005 to
April 10, 2007, the per share closing price of our common stock has ranged from
$0.15 to $1.05. As a result of the following events, there is not currently an
organized market in our securities, and there can be no assurance that such a
market will develop:

      o     the temporary suspension of trading in our securities on April 1,
            2004;
      o     our press release dated April 7, 2004 advising investors not to
            trade in our securities until further disclosure; and
      o     our voluntary delisting of our securities from The Nasdaq Stock
            Market on April 8, 2004.

                                       22
<PAGE>

The value of our Class A Common Stock may decline regardless of our operating
performance or prospects. Factors affecting our market price include:

      o     the success or failure of our product development efforts,
            especially those related to obtaining regulatory approvals;
      o     technological innovations developed by us or our competitors;
      o     variations in our operating results and the extent to which we
            achieve our key business targets;
      o     differences of our reported results from those expected by investors
            and securities analysts; and
      o     market reaction to any acquisitions or joint ventures announced by
            us or our competitors.

      In addition, in recent years, the stock market, and the market for
pharmaceutical companies in particular, has generally experienced significant
price and volume fluctuations. This volatility has affected the market prices of
securities issued by many companies, often for reasons unrelated to their
operating performance, and it may adversely affect the price of our common
stock. In the past, securities class action litigation has often been instituted
following periods of volatility in the market price of a company's securities.
For example, we have recently settled, and received final court approval of,
several securities class action lawsuits. See Item 3, "Legal Proceedings" for
more information.

"PENNY STOCK" RULES MAY MAKE BUYING OR SELLING OUR SECURITIES DIFFICULT WHICH
MAY MAKE OUR STOCK LESS LIQUID AND MAKE IT HARDER FOR INVESTORS TO BUY AND SELL
OUR SHARES.

      Trading in our securities is subject to the SEC's "penny stock" rules and
it is anticipated that trading in our securities will continue to be subject to
the penny stock rules for the foreseeable future. The SEC has adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
These rules require that any broker-dealer who recommends our securities to
persons other than prior customers and accredited investors must, prior to the
sale, make a special written suitability determination for the purchaser and
receive the purchaser's written agreement to execute the transaction. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated with trading in the penny stock
market. In addition, broker-dealers must disclose commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities they offer. The additional burdens imposed upon broker-dealers by
these requirements may discourage broker-dealers from recommending transactions
in our securities, which could severely limit the liquidity of our securities
and consequently adversely affect the market price for our securities.

ITEM 2.  DESCRIPTION OF PROPERTY

      Currently, we share our principal corporate office space with BioChemics
in Danvers, Massachusetts. Our principal corporate offices accommodate our
operational, selling, marketing and administrative needs. The lease for this
approximately 6,800 square feet of office space is held by BioChemics and
expires May 2012. We do not have a lease agreement with BioChemics. Although we
do not have a formal lease agreement with BioChemics, we currently pay
approximately $6,400 per month in rent to BioChemics for our office and
warehouse space. We do not own or lease any other real property. During each of
2006 and 2005, we recorded approximately $54,000 and $44,000 respectively in
rent expense for this office and warehouse facility. We anticipate that this
arrangement will continue at least through May 2012. We believe that our
existing facilities are adequate to support our existing operations and that, if
needed, we will be able to obtain suitable additional facilities on commercially
reasonable terms.

ITEM 3.  LEGAL PROCEEDINGS

LAWSUIT AGAINST ROBINSON & COLE LLP

      As previously reported, the Company and BioChemics filed a lawsuit in the
Massachusetts Superior Court against the law firm of Robinson & Cole LLP. The
Company and BioChemics are seeking damages as a result of harm and losses that
they believe they suffered as a result of advice provided by Robinson & Cole in
connection with the Company's initial public offering in 2003. The Company and
BioChemics believe that as a direct result of Robinson & Cole's actions, they
sustained over $100 million in damages due to lost market capitalization,
out-of-pocket expenses, loss of market opportunities and related damages.

                                       23
<PAGE>

      The lawsuit has been brought on a contingency fee basis, and the costs of
the lawsuit are therefore not expected to be material to the Company's current
cash flow or resources. It is possible that Robinson & Cole may assert
counterclaims against us in this matter, in particular, with respect t o legal
fees billed to us by Robinson & Cole that we have not paid but no such claim was
asserted when Robinson & Cole filed its Answer to the Complaint. In any event,
we believe that any unpaid legal fees are directly related to the legal work
performed by Robinson & Cole that is the subject of this lawsuit. Consequently,
we do not believe that Robinson & Cole is entitled to payment for such services.
Based upon a Scheduling Order issued by the Court, we believe that, unless there
is a settlement or a pre-trial disposition of the case, trial of this matter is
most likely to occur in 2008.

SETTLEMENT OF CERTAIN STOCKHOLDER LITIGATION

      In 2004, the Company and certain of its officers and directors were sued
in several securities class action lawsuits filed in the United States District
Court for the District of Massachusetts. The complaints, which were
consolidated, sought equitable and monetary relief, an unspecified amount of
damages, with interest, attorneys fees and costs, were filed on behalf of
purchasers of Vaso Active Class A common stock during the period December 9,
2003 to March 31, 2004 (the "Class Action").

      In September 2005, the Company and certain of its named officers and
directors entered into an agreement to settle the Class Action. The parties to
the agreement obtained the court's final approval of the settlement on December
14, 2005 and the orders approving the settlement and dismissing the action were
entered on December 21, 2005. The time for filing appeals from the court's
orders ran, and no appeals were filed. Under the terms of the settlement
agreement, the Company, disclaiming any liability, caused to be paid into escrow
for the benefit of the putative class $1,100,000 in cash. The Company's
insurance carrier paid the $1,100,000 in exchange for a release of its liability
under its insurance policy with the Company. Also under the settlement, the
Company is to issue $750,000 face amount of 2-year 5% subordinated callable
notes convertible at $1.75 per share (with full anti-dilution protection) (the
"Settlement"). Of the $750,000 Settlement, a Settlement Note in the amount of
$187,500 has already been issued to plaintiffs' counsel as part of their fee
award as approved by the Court. The balance of the Notes are expected to be
issued shortly because the Claims Administrator has completed its review and
evaluation of claims submitted by putative class members and has prepared the
Claims Administrator's report, including recommendations. The report has been
submitted to the Court, together with a Motion for Distribution of the Class
Settlement Fund. We anticipate that the Motion and the Report and Recommendation
will be approved by the Court, at which time a global settlement note for the
balance of settlement amount will be issued for the benefit of the claimants.

      There were no requests for exclusion from the class submitted by any
potential claimant, and therefore it is not expected that any additional actions
will be filed against the Company alleging claims similar to those raised in the
class action. In consideration of the settlement, the parties agreed to fully
and finally release and discharge all claims against each other.

      For the years ended December 31, 2005 and 2004, the Company recorded
approximately $998,000 and $1,114,000, respectively, in expenses to defend
itself and settle in the SEC and private litigation matters discussed above and
in previous reports filed by the Company, including legal, accounting and other
consulting fees and the $885,000 charge in connection with the Company's
settlement of the consolidated securities class action lawsuit.

FDA MATTERS

      We believe that the active ingredients, dosage form and strengths of A-R
Extreme, Osteon and Termin8 are covered by the FDA's OTC Review Program and
therefore we believe these products are currently eligible for marketing under
the same program (See "Government Regulation" under Item 1 above). We submitted
new labels for our previously marketed products to the FDA in May 2004 and
requested comments by the FDA on these labels. In September 2004, we began to
distribute these products under revised labeling once we were reasonably sure
that the marketing of these products was consistent with the FDA's requirements
and policies. There is no regulatory requirement that the FDA review or comment
on such materials and so far, the FDA has not provided any comment relating to
the new labels. Although we were not provided any comment from the FDA, we are
now reasonably sure that these new labels are consistent with all FDA
regulations and policies and as a result, we resumed marketing and shipment of
our products in September 2004.

GENERAL

      Other than described above, we are not a party to any pending legal
proceedings or are aware of any pending legal proceedings against us that,
individually or in the aggregate, would have a material adverse affect on our
business, results of operations or financial condition.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted for a vote of the shareholders during the year ended
December 31, 2006.

                                       24
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
         BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

      Our Class A Common Stock, $0.0001 par value, began trading on December 10,
2003 on the Nasdaq SmallCap Market under the symbol "VAPH." In light of the
substantial administrative and cash burdens of maintaining our Nasdaq listing ,
we determined that it was in the best interests of our shareholders for the
company to cease voluntarily the listing of its securities on Nasdaq. Effective
April 8, 2004, upon our request, our Class A Common Stock ceased to be listed on
Nasdaq. Beginning April 15, 2004, our Class A Common Stock was quoted on the
Pink Sheets. Since February 17, 2006, our Class A Common Stock has been quoted
on the OTC Bulletin Board under the symbol "VAPH.ob".

      The following table sets forth the high and low sale price quotations
(split adjusted) for each calendar quarter in which trading occurred during the
last three fiscal years. Such quotations reflect inter-dealer prices, without
retail markup, markdown or commission, and may not represent actual
transactions.

        Year          Quarter           High Price           Low Price
    ------------  ----------------  ------------------   -----------------
        2006       Fourth Quarter   $             0.29   $            0.15
                   Third Quarter                  0.51                0.28
                   Second Quarter                 0.70                0.42
                   First Quarter                  0.85                0.30

        2005       Fourth Quarter   $             0.65   $            0.42
                   Third Quarter                  0.82                0.41
                   Second Quarter                 1.05                0.20
                   First Quarter                  0.95                0.53

        2004       Fourth Quarter   $             0.72   $            0.38
                   Third Quarter                  1.53                0.55
                   Second Quarter                 7.59                0.44
                   First Quarter                 14.11                1.97

HOLDERS

      As of March 27, 2007, there were approximately 27 holders of record of
shares of our Class A Common Stock. There is one holder, BioChemics, of our
Class B Common Stock.

DIVIDENDS

      On February 20, 2004, we announced a three-for-one stock split on all
classes of common equity in the form of a 200% stock dividend paid on March 5,
2004 to stockholders of record on February 23, 2004. We have not previously paid
any cash dividends on either class of our common stock and do not anticipate or
contemplate paying cash dividends on our Class A Common Stock in the foreseeable
future. It is the present intention of management to utilize all available funds
for future operations.

      The Securities Purchase Agreement that we entered into in connection with
our August 2005 private financing prohibits our paying dividends on either class
of our common stock so long as 20% of the notes issued in that financing remian
outstanding.

      In addition to the described Securities Purchase Agreement restrictions,
we are subject to limitations on our ability to pay dividends on the common
stock imposed by corporate law. Under Delaware corporate law, no dividends or
other distributions may be made which would render us insolvent or reduce assets
to less than the sum of our liabilities plus the amount needed to satisfy any
liquidation preference. Even if we were not subject to the Securities Purchase
Agreement restrictions, we would most likely retain any earnings to finance our
future development and growth. We may reconsider this policy from time to time
in light of conditions then existing, including our earnings performance,
financial condition and capital requirements. Any future determination to pay
cash dividends, if and when permitted under the Securities Purchase Agreement's
terms, will be at the discretion of our board of directors and will depend upon
our financial condition, operating results, capital requirements, general
business conditions and other factors that our board of directors deems
relevant.

                                       25
<PAGE>

EQUITY COMPENSATION PLAN INFORMATION

      The following table sets forth information as of December 31, 2006,
concerning compensation plans for which the Company has authorized the future
issuance of shares of its Class A Common Stock:

                               Number of
                             securities to        Weighted
                             be issued upon       average          Number of
                              exercise of      exercise price      securities
                              outstanding      of outstanding      remaining
                                options,          options,       available for
                              warrants and      warrants and         future
                                 rights            rights           issuance
                             --------------    --------------    -------------
      Equity compensation        1,425,000(1)  $        1.56(1)      1,575,00(1)
      plans approved by
      security holders (1)

      Equity compensation
      plans not approved by
      security holders                  --                --               --
                             --------------    --------------    -------------
      Total                      1,425,000              1.56        1,575,000
                             --------------    --------------    -------------

      (1)   Consists of: (a) 1,095,000 shares of Class A Common Stock issuable
            upon exercise of outstanding options under the Plan, having a
            weighted average exercise price of $1.68 per share, and (b) 330,000
            shares of Class A Common Stock issuable upon exercise of outstanding
            options under the 2003 Non-Employee Director Compensation Plan,
            having a weighted average of $1.14 per share. As of December 31,
            2006, a total of 1,005,000 shares of Class A Common Stock remained
            available for future issuance under the Plan, and 570,000 shares of
            Class A Common Stock remained available for future issuance under
            the Director Plan.

RECENT SALES OF UNREGISTERED SECURITIES

      During 2006, no securities were sold by us that were not registered under
the Securities Act of 1933:

REPURCHASES OF EQUITY SECURITIES OF THE ISSUER

      During 2006, we did not repurchase any of our outstanding securities.

                                       26
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

BUSINESS OVERVIEW

      Vaso Active is an early stage company, organized in January 2003, which
focuses on commercializing, marketing and selling over-the-counter
pharmaceutical products that we believe incorporate a proprietary PENtoCORE
technology. Vaso Active is also focused on pre-clinical testing and research on
a patented VALE technology.

      We began our operations in January 2001, as a division of BioChemics, a
privately-owned pharmaceutical company engaged in the development of transdermal
and topical drug delivery systems. BioChemics is based in Danvers,
Massachusetts. BioChemics was founded in 1989 by John J. Masiz and was
incorporated in Delaware in 1991. BioChemics began developing the VALE
technology in 1989 and has subsequently been issued four U.S. patents in
connection with this technology. BioChemics has licensed the VALE patents and
the PENtoCORE technology to us.

      As an early stage company, we are subject to a number of risks typical of
early stage companies including, but not limited to, our need to obtain
additional financing and generate profitability and cash flows from operations.
As a company engaged in the pharmaceutical industry, we are subject to a number
of risks typical of pharmaceutical companies including, but not limited to, our
need to adhere to strict governmental regulations, our ability to withstand
intense competition from larger companies with greater financial resources and
our ability to defend our intellectual property, as licensed from BioChemics.

      Our general business strategy was adversely affected beginning in April
2004 by regulatory action taken against us and our former President, and by
private securities actions taken against us and our management. At the same
time, we suspended the marketing and sale of our products until we were
reasonably sure that our product marketing was consistent with the FDA's
requirements and policies. In September 2004 we began marketing and selling our
three existing products under revised labelling. We also voluntarily delisted
our common stock from trading on NASDAQ. As a result of our voluntary delisting
and the continuation of the delisting of our securities, the action taken by the
SEC against us, issues regarding the regulatory status of our products, and the
significant decline in the market value of our securities concurrent with and
subsequent to these matters, several shareholder actions were filed against Vaso
Active and its officers and directors.

      In September 2005, the Company and certain of its officers and directors
entered into agreements to settle (i) a consolidated securities class action
lawsuit that alleged that the Company and those individuals violated the federal
securities laws with respect to certain disclosures concerning the Company; and
(ii) derivative lawsuits based on the class action allegations. In October 2005,
the court granted preliminary approval to each of the litigation settlements,
following which joint notices of the settlements and claim forms were sent to
appropriate stockholders. The parties to the agreements obtained the court's
final approval of the settlements on December 14, 2005. For further information,
see Item 3, "Legal Proceedings."

      During 2006 the Company commenced wholesale distribution under purchase
order to chain drug and grocery stores. At April 10, 2007 products are being
distributed through eight drug and grocery chains totaling more than 1,000
retail stores plus 120 independent pharmacies. In addition our products have
recently become available for purchase on Amazon.com, AmericaRX.com,
HarmonDiscount.com, and AlleonPharmacy.net. Online sales have not been
significant to date.

CRITICAL ACCOUNTING ESTIMATES

      GOING CONCERN ASSUMPTION - The financial statements do not include any
adjustments relating to the recoverability and classification of assets or the
amounts and classification of liabilities that might be necessary should we be
unable to continue as a going concern. If the financial statements were prepared
on a liquidation basis, the carrying value of our assets and liabilities would
be adjusted to net realizable amounts. In addition, the classification of the
assets and liabilities would be adjusted to reflect the liquidation basis of
accounting.

                                       27
<PAGE>

      REVENUE RECOGNITION

      Revenue from product sales is recognized when delivery has occurred.
However, because our products are sold with limited rights of return, we record
allowances for product returns, rebates and discounts, and report revenue net of
such allowances. We must make judgments and estimates in preparing the
allowances that could require adjustments in the future. We base our estimates
on historic patterns of returns and on the expiration dates of product currently
being shipped.

      EXPENSE ALLOCATIONS / MANAGEMENT FEES - BioChemics provides us with
certain administrative, marketing and management services, as well as our
facilities and general corporate infrastructure. Our statement of operations
includes allocations of these costs that BioChemics and we considered to be
reasonable.

      INCOME TAXES - We account for income taxes and deferred tax assets and
liabilities in accordance with SFAS No. 109 "Accounting for Income Taxes."
Because we project future operating losses in the near term, we have provided a
full valuation allowance against the deferred tax assets created by these
losses.

      STOCK-BASED COMPENSATION - As part of our compensation programs offered to
our employees, we grant stock options. In the first quarter of 2006 the Company
adopted Statement of Financial Accounting Standards No. 123(R) "Share-Based
Payments" ("SFAS 123(R)"), which requires all share-based payments to employees,
including stock options and stock issued under certain employee stock purchase
plans, to be recognized in the Company's financial statements at their grant
date fair value. SFAS 123(R) requires the Company to estimate future forfeitures
of stock-based compensation, while the pro forma disclosure for the year ended
December 31, 2005 excludes only those options that had been forfeited during
that period. The Company has continued to use the Black-Scholes option pricing
model to determine the fair value of options under SFAS 123(R) and has elected
to use the modified-prospective transition method, in which prior period
financial statements will not be restated but disclosure of the pro forma net
loss calculation will be included in the footnotes to the financial statements
for periods prior to fiscal 2006 and the adoption of SFAS 123(R).

      Prior to the first quarter of fiscal 2006, the Company recorded
stock-based compensation issued to employees and non-employee directors using
the intrinsic value method and stock based-compensation issued to non-employees
using the fair value method. Stock-based compensation was previously recognized
on stock options issued to employees only if the option exercise price was less
than the market price of the underlying stock on the date of the grant. During
the year ended December 31, 2005 , no stock-based compensation was recorded
under the intrinsic value method.

      During the year ended December 31, 2006, the Company recorded stock-based
compensation expense of $249,982 in accordance with SFAS 123(R).

2006 COMPARED TO 2005

      NET REVENUES - Net revenues for the year ended December 31, 2006 increased
by approximately 316% to $104,864 from $25,221 in the comparable period in 2005.
Although the dollar value of shipments in both 2006 and 2005 were not
significant in relation to the scale of our operations, the significant increase
in percentage terms is the result of shipments in 2006 to chain drug and grocery
stores consisting largely of initial orders. We did not ship to chain drug and
grocery stores for the comparable period in 2005. Our ability to properly
support a significantly larger distribution network has been negatively affected
due to working capital constraints.

      COST OF SALES - Cost of sales principally includes the cost of products
and inventory adjustments. Cost of sales increased by approximately 189% to
$123,743 from $42,887 in the comparable period in 2005. Cost of sales for 2006
included a charge of approximately $60,000 to reserve for expiring product and
$10,972 for production expenses and for 2005 included product disposal costs and
production set up costs of approximately $35,902. At our current low level of
sales we believe there can be no meaningful comparisons.

                                       28
<PAGE>

      MARKETING, ADVERTISING AND PROMOTION - Marketing, advertising and
promotion expenses for the year ended December 31, 2006 decreased $249,329 to
$69,635 from $318,964 in the comparable period in 2005. Included in the 2005
expense was approximately $139,000 in advertising fees we incurred in connection
with our launch of a series of 60 and 120 second television commercials for
Osteon throughout the United States. In addition, we incurred costs of $96,211
for samples that were distributed throughout the year, and $64,447 for various
promotional expenses that included shows and conferences. The decline in 2006
was related to marketing budget cuts brought about by our lack of working
capital.

      SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative
expenses decreased by $724,889 to $1,902,842 during the year ended December 31,
2006 as compared to $2,627,731 in the comparable period in 2005. The decrease in
selling, general and administrative was largely due to decreases in legal and
professional fees, savings in insurance costs and savings resulting from lower
board of director fees.

      Selling, general and administrative expenses in 2006 primarily consist of
salaries, wages and related personnel costs, professional fees such as legal,
audit and business advisory services typical of a publicly held corporation,
commercial liability and directors and officers insurance costs and general
overhead such as facility costs.

      RESEARCH AND DEVELOPMENT - Research and development expenses decreased by
$337,571 to $4,191 for the year ended December 31, 2006 as compared to $342,482
for the comparable period in 2005. In 2005, our research and development
activities were primarily focused on the formulation of an analgesic utilizing
the active ingredient ibuprofen. These activities were performed under our
direction by BioChemics under the terms and conditions of our August 2003
agreement. Also included in 2005 research and development expenses was $54,912
in stock-based compensation related to stock options we issued to non-employees.
We suspended substantially all research and development activities in December
2005 due to working capital constraints.

      INTEREST EXPENSE - Interest expense increased $495,508 to $788,040 for the
year ended December 31, 2006 as compared to $292,532 for the comparable period
in 2005. The increase is substantially the effect of a full year expense in 2006
related to the Senior Secured Convertible notes issued in August 2005.

LIQUIDITY AND CAPITAL RESOURCES

      The Company has incurred substantial operating losses and negative cash
flows from operations since inception. In 2004 and 2005, until the completion of
our private financing in August 2005, operations were financed primarily from
the proceeds of our December 2003 initial public offering and from the exercise
of warrants. Net of offering costs, we raised approximately $6.4 million and
$450,000, respectively, through these transactions. Prior to our receipt of
these proceeds, we relied on BioChemics, together with the proceeds from an
offering of convertible notes in early 2003, as the source of our working
capital. We have expended all of the funds raised from our initial public
offering.

      On August 16, 2005, under a Securities Purchase Agreement (the "Purchase
Agreement"), we issued a series of Senior Secured Convertible Notes (the
"Notes") due May 1, 2007 in the aggregate principal amount of $2,500,000. The
Company received approximately $1,700,000 in net cash proceeds from financing
after placement fees, legal expenses, other offering costs, and funding of an
escrow for future interest payments on the Notes. Placement fees, legal expenses
and other offering costs paid were approximately $360,000 and approximately
$440,000 was placed into escrow to fund substantially all of the Company's
interest payments on the Notes (assuming that the Notes continue to accrue
interest at the initial rate of 10% per annum).

      THE NOTES. The Notes have a term of 21 months, and the principal of the
Notes is due and payable in a single payment on May 1, 2007. The Notes bear
interest at the six month LIBOR plus 6% with a floor of 10.0% and a ceiling of
12.0% and a default rate of interest of 18% per annum. The Notes presently
accrue interest at 10% per annum. Interest is payable quarterly, in arrears,
beginning October 31, 2005, on each July 31, October 31, January 30 and April
30, until the earlier of the Notes' maturity or conversion date.

                                       29
<PAGE>

      Amounts scheduled to be paid by the Company under the Notes may be
accelerated upon the occurrence of certain events, including any default in the
payment of interest when due and payable; the default by the Company under other
notes, mortgage, or credit facility; the failure of the Company to perform
certain obligations to deliver certificates for Underlying Shares or to timely
register the Underlying Shares for resale as required under the Purchase
Agreement; and in the event of bankruptcy.

      The Notes are secured by all of the assets of the Company. The Notes are
convertible, by the holders of the Notes, at any time into shares of the
Company's Class A Common Stock at a price of $0.70 per share (subject to
adjustment under certain circumstances, e.g., anti-dilution adjustments).

      THE WARRANTS. The investors also received five-year warrants ("Warrants"),
which entitle the investors to purchase a total of 1,298,701 shares of the
Company's Class A Common Stock at an exercise price of $0.77 per share. The
number of shares which may be purchased upon exercise of the Warrants and the
exercise price per share of the Warrants are subject to adjustment under certain
circumstances, e.g., anti-dilution adjustments.

      ADDITIONAL INVESTMENT RIGHTS (AIRS). In addition, the investors received
AIRs to purchase up to $1,875,000 in aggregate principal amount of additional
Notes at any time through May 1, 2007, which is the maturity date of the Notes,
together with additional five-year Warrants to purchase a total of 974,026
shares of Class A Common Stock. Any additional Notes would be convertible and
any additional Warrants would be exercisable at the same respective initial
prices per share as the Notes and Warrants issued on August 16, 2005.

      Under the Purchase Agreement, the Company is required to reserve for
issuance a total of 8,522,727 shares of Class A Common Stock, in connection with
the possible conversion of Notes (including the additional Notes) and the
possible exercise of the Warrants (including the additional Warrants).

      At April 10, 2007, we had unrestricted cash of less than $10,000 and a
working capital deficiency of approximately $4.5 million, excluding $74,000 of
restricted cash held in escrow to fund future interest payments on the senior
secured convertible notes we sold in 2005, and excluding approximately $237,000
of accounts payable related to legal fees that we intend to contest. Our
financial condition has been materially and adversely affected by regulatory and
shareholder actions taken against us during 2004 and 2005.

      The private financing investors have informally indicated to us that they
will not purchase the additional notes and warrants available to them under the
AIRS unless we are willing to renegotiate the terms of this purchase. Our
ability to continue our business activities, including increasing our marketing
support for our existing products, funding of the development of our product
candidates through BioChemics and the commercialization of these product
candidates, will depend upon, among other things, raising capital from third
parties or receiving net cash flows from sales of our products. If we
successfully generate cash through any of these methods, our priorities will be:
(i) to contribute to support our existing products; (ii) to bring our acne
product candidate to market; and (iii) to commence clinical trials for our
ibuprofen candidate.

      We are engaged in presentations and discussions with potential investors
in an attempt to obtain financing in order to provide important funds to the
Company. Without these funds, the we will be unable to pay approximately $2.5
million due to holders of Notes issued in 2005 and due May 1, 2007. We are
uncertain whether we will obtain any financing. If we are unable to obtain new
financing, then the Company may be in default of the obligations under such
notes after May 1, 2007. The Company, if it is unable to negotiate a
forbearance, extension or other arrangement, may be forced to seek relief from
its creditors in bankruptcy, or the holders of such notes might seek to
foreclose on the Company assets, liquidate the Company, or have it declared
insolvent.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

      The following table sets forth our contractual obligations and commitments
for the next five years, as of December 31, 2006.

<TABLE>
<CAPTION>
                                                      LESS THAN       1 - 3         3 - 5         5 - 7
                                          TOTAL         1 YEAR        YEARS         YEARS         YEARS
<S>                                    <C>           <C>          <C>            <C>           <C>
Long-term debt                         $  2,500,000  $  2,500,000 $           -  $          -  $          -
Notes payable                               870,000       870,000             -             -             -
Capital lease obligations                    11,621         2,510         5,661         3,450             -
Operating lease obligations                       -             -             -             -             -
Unconditional purchase obligations                -             -             -             -             -
Employment agreements                     2,205,000       315,000       630,000       630,000       630,000
                                       ------------  ------------  ------------  ------------  ------------

Total                                  $  5,586,621  $  3,687,510  $    635,661  $    633,450  $    630,000
                                       ============  ============  ============  ============  ============
</TABLE>
                                       30
<PAGE>

      In February 2005, we appointed our Chief Financial Officer, Mr. Joseph
Frattaroli, as our President. Mr. Frattaroli will continue to serve as Chief
Financial Officer and Acting Chief Executive Officer. Mr. Frattaroli is
receiving salary of $175,000 per year but is not providing those services under
a written contract. Mr. Frattaroli's salary is not presented in this table. The
written employment agreements with Mr. Masiz and Dr. Carter terminate their
initial terms on June 30, 2008, but are deemed automatically extended for
successive periods of two years under the terms of their respective written
agreements through 2012. This table is presented to reflect the effect of
occurance of the automatic extensions.

      In September 2005, Vaso Active and certain of its officers and directors,
entered into agreements to settle the previously reported consolidated
securities class action and derivative lawsuits. As a result of these
settlements, we recorded a charge of $895,000 payable $25,000 in cash and
$870,000 in the form of 2 year 5% convertible notes, issued in March 2006 that
are reflected as a notes payable in this table.

OFF-BALANCE SHEET ARRANGEMENTS

      We have no material off-balance sheet financing such as a facility lease
or other long-term commitments. We have employment agreements with three key
employees. Please refer to "Contractual Obligations and Commitments" for a
summary of our obligations under employment agreements.

OWNERSHIP STRUCTURE

      Through our parent company, BioChemics, John J. Masiz controls
approximately 70% of the combined voting power of all classes of stock of the
Company and approximately 44% of the combined equity interest of the Company.
BioChemics owns 100% of the Class B Common Stock of the Company.

INFLATION

      To date, inflation has had no material impact on our operations.

ITEM 7.  FINANCIAL STATEMENTS

      Our audited financial statements and related notes, which are attached to
this Annual Report on Form 10-KSB beginning on page F-1, are incorporated by
reference.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

      None.

ITEM 8A. CONTROLS AND PROCEDURES

      As of the end of the period covered by this annual report, our Acting
Chief Executive Officer and Chief Financial Officer (the "Certifying Officer")
conducted evaluations of our disclosure controls and procedures. As defined
under Sections 13a-15(e) and 15d-15(e) of the 1934 Act, the term "disclosure
controls and procedures" means controls and other procedures of an issuer that
are designed to ensure that information required to be disclosed by the issuer
in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the issuer's management,
including the Certifying Officer, to allow timely decisions regarding required
disclosure. Based on this evaluation, the Certifying Officer has concluded that
our disclosure controls and procedures are effective to ensure that material
information is recorded, processed, summarized and reported by our management on
a timely basis in order to comply with our disclosure obligations under the 1934
Act, and the rules and regulations promulgated thereunder.

      Further, there were no changes in our internal control over financial
reporting during the fourth fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

ITEM 8B.

      None.

                                       31
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND
         CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND OFFICERS

      Set forth below is the name, age as of December 31, 2006, position and a
brief account of the business experience of each of our executive officers and
directors:

NAME                          AGE     POSITION
--------------------------------------------------------------------------------
Joseph Frattaroli             44      President, Acting Chief Executive Officer
                                      and Chief Financial Officer
Stephen Carter, Ph.D.         54      Vice President, Chief Scientific Officer,
                                      Director
Robert E. Anderson            51      Director, Chairman of the Board (2), (4)
Ronald Guerriero              63      Director (1), (3), (4)
D'Anne Hurd                   56      Director (1), (2), (3), (4)
Bruce A. Shear                52      Director (1), (4)
Brian J. Strasnick, Ph.D.     53      Director (2), (3), (4)
----------

      (1)   Member of the Audit Committee of the Board of Directors
      (2)   Member of the Nominating and Corporate Governance Committee of the
            Board of Directors
      (3)   Member of the Compensation Committee of the Board of Directors
      (4)   Independent Director

      JOSEPH FRATTAROLI - Mr. Frattaroli has served as Acting Chief Executive
Officer of the Company since August 2004, as President of the Company since
February 2005, and as Chief Financial Officer of the Company since June 2003. He
served as Acting President of the Company from August 2004 until February 2005.
From January 2002 through April 2003, Mr. Frattaroli served as an accounting and
financial consultant to BioChemics. From April 2000 through December 2001, Mr.
Frattaroli was Chief Financial Officer of Getov Machine Incorporated, a maker of
precision machine parts for the telecommunications industry.

      STEPHEN G. CARTER, Ph.D. - Dr. Carter has served as the Company's Chief
Scientific Officer since June 2003. He has served as a member of its Board of
Directors since June 2003. From September 1999 to the present, Dr. Carter has
also served as Chief Scientific Officer of BioChemics.

      ROBERT E. ANDERSON - Mr. Anderson has served as a member of the Company's
Board of Directors since June 2003 and has been the Chairman of the Board since
September 17, 2004. From January 1998 to the present, Mr. Anderson has been a
self-employed consultant and investor. Mr. Anderson has also served as a
director of BioChemics since 2003.

                                       32
<PAGE>

      RONALD GUERRIERO - Mr. Guerriero was appointed to the Company's Board of
Directors on September 17, 2004. From March 2004 to the present he has served as
Executive Director of the Research Accelerator Program for Partners HealthCare
System, a non-profit consortium of major hospitals in the Boston area. From 1998
to 2004, he served as President of Bridge Management Group, a company that
specializes in management of medium sized technology companies, where he served
as Chief Executive Officer for four companies. He also serves as an adjunct
faculty member at the Carroll School of Management at Boston College.

      D'ANNE HURD - Ms. Hurd was appointed to the Company's Board of Directors
on September 17, 2004. From July 2005 to the present and from January 2004 to
January 2005, Ms. Hurd has served as an independent business/legal consultant to
several companies. Since January 2006, Ms. Hurd has been the Vice President of
Business Development for Gateway Park and General Counsel for Worcester
Polytechnic Institute. From January 2005 to March 2005, she served as a
financial consultant and from March 2005 to June 2005 as Senior Vice President,
Chief Financial Officer and Treasurer of NMS Communications, Inc., a publicly
traded provider of technologies for mobile applications and infrastructure. From
March 2001 to January 2004, Ms. Hurd was Chief Financial Officer and General
Counsel of StarBak Communications Inc., a company specializing in video
communications technology, and its predecessor company, Vividon, Inc. From July
1999 to March 2001, Ms. Hurd was Chief Financial Officer and General Counsel of
NaviPath, Inc., a former CMGI operating company providing internet access to
internet service providers. From 1993 to the present, she has served as a
director and chairman of the audit committee for Data Translation, Inc., a
company specializing in the design of analog to digital technology.

      BRUCE A. SHEAR - Mr. Shear has served as a member of the Company's Board
of Directors since June 2003. Since 1980, Mr. Shear has served as the President
and Chief Executive Officer of PHC, Inc., a publicly traded behavioral health
company, which he co-founded in 1979. Mr. Shear has served on the Board of
Governors of the Federation of American Health Systems for over 15 years.

      BRIAN J. STRASNICK, Ph.D. - Dr. Strasnick has served as a member of the
Company's Board of Directors since June 2003. Dr. Strasnick is the founder,
Chairman, President and Chief Executive Officer of Willow Laboratories, which is
engaged in the business of drug testing, serving in those positions since
September 1995. Dr. Strasnick has provided behavioral healthcare and
pharmacological services as a practitioner for over 18 years. Dr. Strasnick has
also served on the Board for the Drug and Alcohol Testing Industry Association,
or DATIA.

SIGNIFICANT EMPLOYEE

      JOHN MASIZ - Mr. Masiz, age 47, has served as the Chairman and Chief
Executive Officer of BioChemics since 1989. From the inception of the Company in
January 2004 until August 2004, he served as the Chairman, Chief Executive
Officer and President of the Company. Since August 2004, Mr. Masiz has devoted
approximately 70% of his time as an employee of the Company providing strategic
consulting services regarding matters including sales, marketing and business
development. Mr. Masiz may be deemed to be a "Significant Employee" of the
Company within the meaning of the federal securities laws; he is not an
executive officer of the Company.

      On September 13, 2004, the United States District Court for the District
of Columbia entered final judgments against the Company and Mr. Masiz pursuant
to their settlements of a civil injunctive action commenced by the SEC. Under
the terms of the settlement, without admitting or denying the allegations of the
civil complaint, the Company and Mr. Masiz were enjoined from violating the
antifraud and reporting provisions of the federal securities laws. He is also
prohibited from serving as an officer or director of any public company,
including the Company, for a period of five years. Effective as of August 17,
2004, Mr. Masiz resigned as an executive officer and a director of the Company,
and the Company and Mr. Masiz terminated his then-existing employment agreement.
He is, however, permitted to, and does, serve as an active employee of and/or
consultant to the Company.

THE BOARD OF DIRECTORS

      The Board of Directors oversees the business affairs of the Company and
monitors the performance of management. The Board of Directors held three
meetings during the fiscal year ended December 31, 2006. During the 2006 fiscal
year, all Board members attended 75% or more of the aggregate of (1) the total
number of Board meetings held during the period he or she was a director and (2)
the total number of meetings of the committee(s) of the Board on which the
director serves. Currently, the Board consists of six members: Robert E.
Anderson, Stephen G. Carter, Ronald Guerriero, D'Anne Hurd, Bruce A. Shear and
Brian J. Strasnick. Robert Anderson is the Chairman of our Board of Directors.
In addition, the Board has appointed Mr. Guerriero as the lead independent
director.

                                       33
<PAGE>

COMMITTEES OF THE BOARD

      The Board of Directors has designated three standing committees: the Audit
Committee, the Compensation Committee and the Nominating and Corporate
Governance Committee.

      AUDIT COMMITTEE. The Audit Committee is responsible for making
recommendations to the Board of Directors concerning the selection and
engagement of independent accountants and for reviewing the scope of the annual
audit, audit fees, results of the audit and auditor independence. The Audit
Committee also reviews and discusses with management and the Board of Directors
such matters as accounting policies, internal accounting controls and procedures
for preparation of financial statements. Its membership is currently comprised
of Ms. Hurd (Chairwoman), Mr. Guerriero and Mr. Shear. The Audit Committee held
five meetings during the year ended December 31, 2006. On January 19, 2005, the
Board of Directors amended and revised our Audit Committee Charter in order to
incorporate certain updates in light of the most recent regulatory developments,
including the Sarbanes-Oxley Act of 2002. A copy of the current Audit Committee
Charter, which we filed as an exhibit to the Company's Current Report on Form
8-K, filed January 25, 2005 with the SEC (the "January 2005 Form 8-K") is
available on the Company's website, WWW.VASOACTIVE.US. The Audit Committee
Charter is reviewed annually.

      In October 2005, the Board of Directors determined that Ms. Hurd, the
Chairwoman of the Audit Committee, is an "audit committee financial expert"
within the meaning of applicable regulations adopted by the SEC.

      Because the Company is not listed on a national securities exchange, the
Company is required to adopt a standard for the independence of its Audit
Committee members used by a national securities exchange of its choice. The
Company has adopted the independence standards for Audit Committee members of
the American Stock Exchange ("AMEX"). The Board of Directors has determined that
all members of the Audit Committee are "independent" under the AMEX independence
standards.

      COMPENSATION COMMITTEE. The Compensation Committee reviews and approves
the compensation for executive employees. Its membership is currently comprised
of Messrs. Guerriero (Chairman) and Strasnick and Ms. Hurd. The Compensation
Committee held two meetings during the year ended December 31, 2006. A copy of
the current Compensation Committee Charter is available on the Company's
website, WWW.VASOACTIVE.US, and was also filed as an exhibit to the January 2005
Form 8-K.

      NOMINATING AND CORPORATE GOVERNANCE COMMITTEE. The Board of Directors
established the Nominating and Corporate Governance Committee in December 2004
for the purposes of identifying individuals qualified to become Board members
and to recommend that the Board select these individuals as nominees for
election to the Board at the next annual meeting of the Company's stockholders,
and developing and recommending to the Board a set of effective corporate
governance policies and procedures applicable to the Company. The Nominating and
Corporate Governance Committee held no meetings during the year ended December
31, 2006. Its membership is currently comprised of Ms. Hurd (Chairwoman) and
Messrs. Guerriero and Strasnick. The charter of this Committee is available on
the Company's website, WWW.VASOACTIVE.US, and was also filed as an exhibit to
the January 2005 Form 8-K.

      Because the Company is not listed on a national securities exchange, the
Company is required to adopt a standard for the independence of its Nominating
and Governance Committee members used by a national securities exchange of its
choice. The Company has adopted the independence standards for Nominating and
Corporate Governance Committee members of AMEX. The Board of Directors has
determined that all members of the Nominating and Corporate Governance Committee
are "independent" under the AMEX independence standards.

      Under its charter, the Nominating and Corporate Governance Committee from
time to time may actively seek nominees for the Board as well as obtain
recommendations from management and stockholders. In assessing potential
nominees for the Board, the Committee generally considers business experience,
administrative skills and the ability to interact effectively with the full
board and management, among other attributes. The Committee will also consider
other factors, such as diversity and specific needs of the Board at a particular
time. This process includes identifying candidates with excellent
decision-making ability, technological background, personal integrity and
reputation, experience with businesses and other organizations of comparable
size, experience as an executive with a publicly traded company, the interplay
of the candidate's experience with the experience of other Board members, and
the extent to which the candidate would be a desirable addition to committees of
the Board. Candidates nominated by stockholders will be evaluated on the basis
of the same criteria that all other director nominees are evaluated.

                                       34
<PAGE>

POLICY REGARDING DIRECTOR NOMINATIONS BY STOCKHOLDERS

      GENERALLY. The Board of Directors will consider all director candidates
recommended to the Nominating and Corporate Governance Committee (the
"Nominating Committee") by stockholders owning at least five percent (5%) of the
Company's outstanding shares of capital stock at all times during the year
preceding the date on which the recommendation is made that meet the
qualifications established by the Board.

      DIRECTOR MINIMUM QUALIFICATIONS. Set forth below are the minimum
qualifications that the Nominating Committee believes are needed to effectively
serve as a Company director:

      o     Each director nominee is evaluated in the context of the full
            Board's qualifications as a whole, with the objective of
            establishing a Board that can best perpetuate the success of the
            Company's business and represent stockholder interests through the
            exercise of sound judgment. Each director nominee will be evaluated
            considering the relevance to the Company of the director nominee's
            respective skills and experience, which must be complimentary to the
            skills and experience of the other members of the Board.
      o     Director nominees must possess a general understanding of marketing,
            finance and other elements relevant to the success of a
            publicly-traded company in today's business environment, and an
            understanding of the Company's business on an operational level.
      o     Each director may be assigned committee responsibilities. A director
            nominee's educational and professional backgrounds must be
            consistent with the director nominee's committee assignment (e.g.,
            director nominees who will be assigned to the Audit Committee must
            be financially literate as may be defined within the Audit Committee
            Charter).
      o     Director nominees must demonstrate a willingness to devote the
            appropriate time to fulfilling Board duties.
      o     Director nominees shall not represent a special interest or special
            interest group whose agenda is inconsistent with the Company's goals
            and objectives or whose approach and methods are inconsistent with
            what the Board believes is in the best interest of the Company's
            stockholders.
      o     Director nominees shall not be a distraction to the Board, nor shall
            a director nominee be disruptive to the achievement of the Company's
            business mission, goals and objectives.

      PROCEDURES FOR STOCKHOLDER NOMINATIONS. Set forth below are the procedures
by which a stockholder may recommend a Board of Directors nominee to the
Nominating Committee:

      o     Stockholder nominations must include all of the information
            described below and must be received by the 120th calendar day
            before the date of the Company's proxy statement released to
            stockholders in connection with the previous year's annual meeting
            to be considered for the next scheduled annual meeting of
            stockholders.
      o     Stockholder nominations must be in writing and submitted via
            registered mail or overnight delivery service to the Committee
            Chairman at the Company's corporate headquarters address.
      o     Supporting documentation must be submitted that allows the Committee
            to verify ownership by the nominating stockholder of at least five
            percent (5%) of the Company's outstanding shares at all times during
            the immediately preceding year from the date of the recommendation.
      o     The stockholder must submit an affidavit from the director nominee
            stating that if elected, the director nominee is willing and able to
            serve on the Company's Board for the full term to which the director
            nominee would be elected. The affidavit must also acknowledge that
            the director nominee is aware of, has read and understands the
            Company's Code of Ethics and Board of Director Committee Charters
            (collectively, the "Corporate Governance Documents"), and further
            that the director nominee acknowledges that, if elected, the
            director nominee is subject to and will abide by the Corporate
            Governance Documents.

                                       35
<PAGE>

      o     The stockholder must submit documentation as to the director
            nominee's qualifications, which at a minimum must include:

            1.    A complete biography, including full employment history;
            2.    A signed consent form and waiver authorizing the Company to
                  perform a full background check of the director nominee,
                  including criminal and credit history, from a firm acceptable
                  to the Company in its sole discretion;
            3.    Documentation of educational levels attained, complete with
                  official transcripts issued directly by the educational
                  institution and sent directly from the educational institution
                  to the Company's Corporate Secretary;
            4.    Disclosure of all special interests and all political and
                  organizational affiliations;
            5.    A signed, written statement from the director nominee
                  indicating the reasons that the director nominee wants to
                  serve on the Company's Board, and the reasons that the
                  director nominee believes that he or she is qualified to
                  serve; and
            6.    A description of all litigation to which he or she or any of
                  his or her affiliates have been a party within the past seven
                  years.

      o     The stockholder must submit any additional information required to
            be included in the Company's proxy statement for director nominees
            which determination will be made by the Company in its sole and
            absolute discretion (including, without limitation, information
            regarding business experience, involvement in legal proceedings,
            security ownership and transactions with the Company or management).
      o     The information submitted by the stockholder must include complete
            contact information for the submitting stockholder and the director
            nominee.

SHAREHOLDER COMMUNICATIONS WITH DIRECTORS

      Stockholders may communicate with the Board of Directors, including the
non-management directors, by sending written communications to the Company,
attention: Corporate Secretary. Any correspondence received by the Company that
is generically addressed to the Board will be forwarded to the Chairman of the
Board, and any correspondence addressed to a particular director or to a
Chairman of a Board Committee will be forwarded to that person without screening
and a copy will be forwarded to the Chairman of the Board. Any director
receiving such correspondence may, but is not required to, share the
correspondence with other directors, management and/or their advisers.

DIRECTOR ATTENDANCE AT ANNUAL MEETINGS

      The Company encourages all Board members to make every effort to attend
annual meetings of stockholders. The Company, however, recognizes that
unavoidable scheduling conflicts and special individual circumstances may
prevent directors from attending these meetings. The Company did not hold an
annual meeting during the year ended December 31, 2006.

CODE OF ETHICS

      On January 25, 2005, the Company adopted a Code of Ethics which applies to
directors and executive officers, such as our principal executive officer,
principal financial officer, controller, and persons performing similar
functions. The Company filed a copy of the code as an exhibit to the January
2005 Form 8-K. You may view and obtain a copy of the code by visiting the
Company's website, WWW.VASOACTIVE.US. Alternatively, upon written request, the
Company will mail to you a copy of the code at no charge. Please mail your
request to the Company, Attention: Mr. Joseph Frattaroli.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

      Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership and changes in
ownership of equity securities with the SEC. Officers, directors, and greater
than ten percent stockholders are required by the SEC regulation to furnish the
Company with copies of all Section 16(a) forms that they file.

      Based solely upon a review of Forms 3 and Forms 4 furnished to the Company
pursuant to Rule 16a-3 under the Exchange Act during the Company's most recent
fiscal year, and Forms 5 with respect to the Company's most recent fiscal year,
we believe that all such forms required to be filed pursuant to Section 16(a)
were timely filed as necessary by the executive officers, directors, and
security holders required to file same during the fiscal year ended December 31,
2006.


                                       36

<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

The following table sets forth information regarding the compensation earned by
our Acting Chief Executive Officer and each of our most highly compensated
executive officers whose aggregate annual salary and bonus exceeded $100,000 for
each of the years indicated with respect to services rendered by such persons.

<TABLE>
<S>     <C>
Name and Principal        Year    Salary       Bonus  Stock Awards    Option     Non-Equity     Nonqualified    All other    Total
Position                            ($)          ($)        ($)      Awards(3)  Incentive Plan    Deferred     compensation   ($)
                                                                       ($)      Compensation    Compensation       ($)
                                                                                    ($)           Earnings
                                                                                                     ($)

Joseph Frattaroli,        2006  $175,000(1) $     -   $      -     $      -    $      -          $     -       $     -      $175,000
President, Acting Chief
Executive Officer and
Chief Financial Officer   2005  $108,300(1) $50,000   $     -      $17,250     $     -           $     -       $            $175,550

Dr. Stephen G. Carter,    2006  $ 140,000   $    -    $     -      $     -     $     -           $     -       $  -         $    -
Chief Scientific Officer
(2)
                          2005  $ 140,000   $    -    $    -       $     -     $     -           $     -       $  -         $     -

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Mr. Frattaroli began his employment with the Company in June 2003 as Chief
Financial Officer. In August 2004, Mr. Frattaroli was appointed Acting President
and Acting Chief Executive Officer of the Company while continuing to serve as
Chief Financial Officer. In February 2005, Mr. Frattaroli was appointed
President while continuing to serve as Chief Financial Officer and Acting Chief
Executive Officer.

(2) Dr. Carter began his employment with the Company in June 2003 as Chief
Scientific Officer. See "Employment Agreements and Arrangements" below for
additional information.

(3) Represents share-based compensation expense incurred for the year ended
December 31, 2006 as well as prior fiscal years, computed in accordance with
SFAS 123R. The amounts shown exclude the impact of estimated forfeitures related
to service-based vesting conditions. For additional information on the valuation
assumptions related to the calculation of the valuation, see the portion of
Footnote 2 to the Financial Statements for the fiscal year ended December 31,
2006, accompanying this Annual Report, captioned "Stock Based Compensation".


EMPLOYMENT AGREEMENTS AND ARRANGEMENTS

      JOHN MASIZ. The Company entered into an employment agreement with Mr.
Masiz, effective as of August 12, 2004, under which agreement he serves on a
part-time basis as a strategic consultant to the Company regarding sales,
marketing, business development and strategic planning through June 30, 2008.
The agreement will be automatically renewed for successive two year terms
thereafter unless terminated earlier by either party in accordance with the
terms and conditions of the employment agreement. The agreement provides for an
annual base salary of $175,000 per year, which may be increased from time to
time. He is also eligible to receive additional compensation in the form of
performance bonuses as well as discretionary bonuses.

      If the Board terminates Mr. Masiz without cause or if he terminates his
employment for good reason (other than within 12 months of a change in control),
he will be paid his then-current base salary through the end of the employment
period plus a pro-rata portion of any incentive compensation award that would
have been payable to him had he remained employed at the end of that fiscal
year. If Mr. Masiz terminates his employment for good reason within 12 months of
a change in control, the Company will pay him a lump sum equal to two times his
then-current annual base salary plus a pro-rata portion of any performance bonus
that would have been payable to him had he remained employed at the end of the
fiscal year. Mr. Masiz's obtaining new employment will not result in the
reduction or cancellation of any payments or benefits owed to him by the
Company.

      A "change of control" with respect to the Company occurs if: (i) an
individual or entity (other than a BioChemics affiliate) acquires control of 30%
or more of the voting power of the outstanding capital stock of the Company;
(ii) BioChemics no longer has the right to designate at least 50% of the members
of the Board; (iii) a majority of the Board members as of the date of the
employment agreement change under certain circumstances; (iv) the Company sells
all or substantially all of its assets; or (v) the Company is the non-surviving
party in a merger.


                                       37
<PAGE>

      The Company entered into this agreement with Mr. Masiz in anticipation of
the final judgment by the United States District Court for the District of
Columbia against the Company and Mr. Masiz, the Company's former President and
Chief Executive Officer, which occurred on September 13, 2004, in connection
with their settlements with the SEC filed with the court. The final judgment
enjoined him from violating the antifraud and reporting provisions, and prevents
him from serving as an officer or director of any public company, including the
Company, for a period of five years. Effective as of August 17, 2004, Mr. Masiz
resigned as an executive officer and a director of the Company. He is, however,
permitted to remain an active employee and/or consultant of the Company. Mr.
Masiz and the Company terminated his previous employment agreement with the
Company prior to entering into the employment agreement described above.

      STEPHEN CARTER. The Company entered into an employment agreement with Dr.
Carter, effective as of June 16, 2003, which provides for his employment as
Chief Scientific Officer through June 30, 2008. The agreement is automatically
renewed for successive two year terms thereafter unless terminated earlier by
either party in accordance with the terms and conditions of the employment
agreement. The agreement provides for an annual base salary of $140,000 per
year, which may be increased from time to time by the Board. He is also eligible
to receive additional compensation in the form of performance bonuses as well as
discretionary bonuses.

      If the Board terminates Dr. Carter without cause or if he terminates his
employment for good reason (other than within 12 months of a change in control,
as described above), he will be paid his then-current base salary through the
end of the employment period plus a pro-rata portion of any incentive
compensation award that would have been payable to him had he remained employed
at the end of that fiscal year. If Dr. Carter terminates his employment for good
reason within 12 months of a change in control, the Company will pay him a lump
sum equal to two times his then-current annual base salary plus a pro-rata
portion of any performance bonus that would have been payable to him had he
remained employed at the end of the fiscal year. The Company will not be
required to continue to make or provide any post-termination payments or
benefits to Dr. Carter if he obtains new employment.

     JOSEPH FRATTAROLI. In February, 2005, the Board of Directors approved the
appointment of Mr. Frattaroli as the Company's President and Acting Chief
Executive Officer and Chief Financial Officer, at an annual base salary of
$115,000, plus a guaranteed 2005 bonus of $60,000, paid on a weekly basis,
commencing March 1, 2005. Commencing March 2006 Mr. Frattaroli's annual salary
was increased to $175,000. Mr. Frattaroli does not have a written employment
agreement.

                                       38

<PAGE>

                   OUTSTANDING EQUITY AWARD AT FISCAL YEAR-END

The following table provides information concerning unvested options,
unexercised options, and equity incentive plan awards for each of our named
executive officers as of December 31, 2006.

<TABLE>
<S>     <C>
                                      OPTION AWARDS                                             STOCK AWARDS
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           Equity
                                                                                                             Equity      Incentive
                                                                                                            Incentive       Plan
                                                                                                              Plan         Awards:
                                                   Equity                                                    Awards:      Market or
                                                  Incentive                                                 Number of      Payout
                                                 Plan Awards:                                     Market    Unearned      Value of
                                                  Number of                          Number of   Value of    Shares,      Unearned
                      Number of     Number of     Securities                         Shares or   Shares or  Units or      Shares,
                      Securities    Securities    Underlying                          Units of    Units of    Other       Units or
                      Underlying   Underlying    Unexercised    Option               Stock that  Stock that Rights that Other Rights
                     Unexercised   Unexercised     Unearned    Exercise    Option     have not    have not   have not    that have
                     Options (#)   Options (#)      Option       Price    Expiration   Vested      Vested     Vested     not Vested
        Name         Exercisable  Unexercisable      (#)          ($)       Date        (#)         ($)         ($)          ($)

Joseph Frattaroli,
President, Acting                                               150,000   150,000 on
Chief Executive                                                 @ $0.50    4-1-2015
Officer and Chief                                              90,000 @   90,000 on
Financial Officer      190,000       50,000                      $1.67    12-15-2014      -          -           -            -

Dr. Stephen G. Carter,
Chief Scientific
Officer                225,000          -              -         $1.67    2-13-2014       -          -           -            -
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


2003 STOCK INCENTIVE PLAN

      The Plan was adopted in May 2003. The Plan has been established for
present and future executives, and other key employees, directors and
consultants of the Company, as may be selected by the Committee. The Plan is
intended to advance the best interests of the Company and its stockholders by
providing those persons who have a substantial responsibility for its management
and growth with additional incentives by allowing them to acquire an ownership
interest in the Company and thereby encouraging them to contribute to the
success of the Company and to remain in its employ.

      The Plan provides for the grant of any one or a combination of restricted
stock grants, incentive stock options, nonqualified stock options and stock
appreciation rights to purchase up to an aggregate of 1,350,000 shares of Class
A Common Stock. No incentive shall be granted under the 2003 Stock Incentive
Plan after July 2013, but the terms and exercise of incentives granted before
the date may extend beyond this date.


      As of December 31, 2006, none of the options granted under the Plan had
been exercised. As of that date, options to purchase 1,095,000 shares of Class A
Common Stock were outstanding under the Plan, and 1,005,000 additional shares of
Class A Common Stock remained available for grants or awards under the Plan.


                                       39

<PAGE>

COMPENSATION OF DIRECTORS

GENERALLY

      At its meeting held on January 20, 2006, the Compensation Committee of the
Board of Directors of the Company approved the following cash compensation
arrangements for 2006 with respect to the non-employee directors of the Company:

      1.    Board of Directors

            (a)   Annual director fee: $7,500 (reduced from $15,000)
            (b)   In-person board meeting fee: $1,000 (reduced from $1,500)
            (c)   Telephonic board meeting fee: $500 (reduced from $750)

      2.    Committees of the Board

- Annual committee membership fee: $2,500

No fees will be paid for attendance at meetings of Board committees.


      The Company records the annual director stipend and annual committee
membership stipend in quarterly installments at the beginning of each calendar
quarter. Each Board member is reimbursed for all reasonable expenses related to
attendance at Board or committee meetings. The Board has elected to waive its
fees for attendance at board meetings held during 2006.

The following table sets forth the compensation paid to our then existing
directors for the fiscal year ending December 31, 2006.

<TABLE>
<S>     <C>
          Name            Fees Earned or    Stock Awards   Option Awards     Non-Equity      Nonqualified      All Other      Total
                            Paid in Cash        ($)             ($)         Incentive Plan     Deferred      Compensation      ($)
                                ($)                                          Compensation    Compensation         ($)
                                                                                 ($)           Earnings
                                                                                                 ($)


Robert E. Anderson            $10,000            -               -                -               -                -         $10,000
Ronald Guerriero              $12,500            -               -                -               -                -         $12,500
D'Anne Hurd                   $15,000            -               -                -               -                -         $15,000
Bruce A. Shear                $10,000            -               -                -               -                -         $10,000
Brian J. Strasnick, Ph.D      $12,500            -               -                -               -                -         $12,500
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       40

<PAGE>

2003 NON-EMPLOYEE DIRECTOR COMPENSATION PLAN

      The 2003 Non-Employee Director Compensation Plan (the "Director Plan") was
adopted in August 2003. Non-employee directors are eligible to participate in
the Director Plan. The purpose of the Director Plan is to assist the Company in
attracting and retaining highly qualified individuals to serve as directors of
the Company by providing them with a performance incentive as a result of stock
ownership in the Company.

      The Director Plan provides for the grant of nonqualified stock options,
restricted stock grants, and stock appreciation rights to purchase up to an
aggregate of 900,000 shares of Class A Common Stock. No grants or awards may be
made under the Director Plan after August 22, 2013, but the term and exercise of
awards or grants made prior to that date may extend beyond that date.

      Under the Director Plan, except as otherwise determined by the Board, each
person who becomes a Non-Employee Director for the first time after June 1, 2003
shall be granted options to purchase 60,000 shares of Class A Common Stock at an
exercise price equal to the fair market value on the date of grant. At the
consummation of the initial public offering, Mr. Anderson, Mr. Shear and Dr.
Strasnick each received an option to purchase 60,000 shares of Class A Common
Stock at $1.67 per share. In December 2004, each non-employee director received
an option to purchase 30,000 shares of Class A Common Stock at $0.50 per share.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of April 10, 2007 by (i)
each director of the Company; (ii) each executive officer of the Company; (iii)
all executive officers and directors of the Company as a group; and (iv) each
stockholder known by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Class A Common Stock or Class B Common Stock. In
compiling the table, the Company has relied upon information supplied by such
persons and upon information contained in SEC filings. On April 10, 2007,
5,828,604 shares of Class A Common Stock were outstanding and 4,500,000 shares
of Class B Common Stock were outstanding.

      Under applicable rules of the Securities Exchange Act of 1934 (the
"Exchange Act"), a person is deemed to beneficially own shares of Common Stock
if that person directly or indirectly has or shares voting power or investment
power with respect to those shares. Except as indicated in the footnotes to the
table, the individuals and entities named in the table have sole voting and
investment power with respect to all shares of Common Stock that they
respectively own beneficially.

      Under applicable Exchange Act rules, a person is also deemed to
beneficially own shares which the person has the right to acquire within sixty
(60) days. For example, on April 10, 2007, if an individual owns options to
acquire 1,000 shares of Class A Common Stock and those options are or would be
exercisable on or before June 9, 2006, that individual will also be deemed to
own those 1,000 shares of Class A Common Stock as of April 10, 2007.

      Because each share of Class B Common Stock is convertible at any time into
one share of Class A Common Stock, under Exchange Act rules holders of Class B
Common Stock are deemed to own beneficially an equal number of shares of Class A
Common Stock. All outstanding shares of Class B Common Stock are held by
BioChemics.

      Unless otherwise noted, the address for each person is: Vaso Active
Pharmaceuticals, Inc., 99 Rosewood Drive, Suite 260, Danvers, Massachusetts
01923.

                                       41

<PAGE>
<TABLE>

                                                               CLASS A COMMON STOCK         CLASS B COMMON STOCK
                                                            --------------------------   --------------------------
                                                               NUMBER        PERCENT        NUMBER         PERCENT
NAME OF BENEFICIAL OWNER                                     OF SHARES       OF CLASS     OF SHARES       OF CLASS
---------------------------------------------------------   -----------     ----------   -----------     ----------
<S>                                                         <C>             <C>          <C>             <C>
   Robert E. Anderson                                          126,000(1)         2.1%             0              *

   BioChemics, Inc.                                          4,500,000(2)        43.6%     4,500,000           100%

   Stephen G. Carter, Ph.D.                                    225,000(3)         3.7%             0              *

   Joseph Frattaroli                                           240,000(4)         4.0%             0              *



   Ronald Guerriero                                             35,000(5)            *             0              *

   D'Anne Hurd                                                  30,000(6)            *             0

   John Masiz                                                4,800,000(7)        45.2%     4,500,000(8)       100%



   Bruce A. Shear                                               90,000(9)         1.5%             0             *

   Brian Strasnick, Ph.D.                                      154,233(10)        2.6%             0             *

   Directors and executive officers as a group                 900,233(11)       15.0%             0             *
   (7 persons)

--------------
</TABLE>
* Represents less than 1%.

(1)   Consists of 36,000 shares of Class A Common Stock and 90,000 shares of
      Class A Common Stock issuable upon exercise of director options.

(2)   BioChemics, 99 Rosewood Drive, Danvers, MA 01923, has sole voting and
      investment power with respect to the 4,500,000 shares of Class B Common
      Stock of which it is holder of record. All the aggregate 4,500,000 shares
      of Class B Common Stock held of record and beneficially owned by
      BioChemics are also deemed beneficially owned by Mr. Masiz.

(3)   Consists of 225,000 shares of Class A Common Stock issuable upon exercise
      of employee options.

(4)   Consists of 240,000 shares of Class A Common Stock issuable upon exercise
      of employee options.

(5)   Consists of 5,000 shares of Class A Common Stock and 30,000 shares of
      Class A Common Stock issuable upon exercise of director options.

(6)   Consists of 30,000 shares of Class A Common Stock issuable upon exercise
      of director options.

(7)   Consists of 300,000 shares of Class A Common Stock issuable upon exercise
      of employee options and 4,500,000 shares of Class B Common Stock owned by
      BioChemics deemed to be beneficially owned by Mr. Masiz.

(8)   Consists of 4,500,000 shares of Class B Common Stock deemed to be
      beneficially owned by Mr. Masiz as a result of his being the controlling
      stockholder of BioChemics. Mr. Masiz's ownership of approximately 83% of
      the outstanding capital stock of BioChemics permits him to control the
      election of all of Biochemics' directors. Mr. Masiz disclaims beneficial
      ownership of all shares listed as beneficially owned by BioChemics except
      to the extent of his pecuniary interest therein. The 4,500,000 shares of
      Class B Common Stock deemed beneficially owned by Mr. Masiz are also
      deemed beneficially owned by BioChemics.

(9)   Consists of 90,000 shares of Class A Common Stock issuable upon exercise
      of director options.

(10)  Consists of 64,233 shares of Class A Common Stock and 90,000 shares of
      Class A Common Stock issuable upon exercise of director options.

(11)  See Notes 1-10 above.

                                       42

<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
          INDEPENDENCE

POLICY REGARDING RELATED PARTY TRANSACTIONS

      Any transactions between the Company and its officers, directors,
principal stockholders or affiliates are required to be on terms no less
favorable to us than could reasonably be obtained in arm's-length transactions
with independent third parties, and any such transaction must also be approved
by a majority of our outside independent directors disinterested in the
transaction. In addition, under our Code of Ethics, all related-party
transactions must be reviewed and approved by the Audit Committee of our Board
of Directors.

RELATIONSHIP WITH BIOCHEMICS GENERALLY

      BioChemics owns all issued and outstanding shares of the Company's Class B
Common Stock. Because the Class B Common Stock has three (3) votes per share,
BioChemics controls approximately 70% of the total votes entitled to be cast at
the Meeting. Our former Chairman, Chief Executive Officer and President, John
Masiz, who is presently an employee of the Company, is also the Chairman, Chief
Executive Officer, President and controlling stockholder of BioChemics. Mr.
Masiz owns approximately 83% of the outstanding capital stock of BioChemics.

      In addition, Robert Anderson, the Company's Chairman of the Board, serves
as a director of BioChemics, and Stephen Carter, a Company director and its
Chief Scientific Officer, serves as the Chief Scientific Officer of BioChemics.
In 2006, the Company made, and expects to make in 2007, payments in excess of
five percent of the Company's 2006 gross revenues to BioChemics.

PRIVATE PLACEMENT OF SECURITIES IN 2003

      In a private placement in April 2003, the Company issued subordinated 10%
convertible pay-in-kind promissory notes in the aggregate principal amount of
$500,000 to accredited investors, including a Company director, Dr. Strasnick,
who purchased notes in the principal amount of $50,000. Upon the consummation of
the Company's initial public offering in December 2003, all of the notes were
converted into shares of Class A Common Stock at a conversion price of $0.83 per
share, which resulted in the issuance of approximately 600,000 shares of Class A
Common Stock by the Company to the holders of these notes. Dr. Strasnick
received 64,233 shares of Class A Common Stock upon the conversion of the notes
he held.

LICENSE AGREEMENT WITH BIOCHEMICS

      The Company has entered into a license agreement with BioChemics, dated as
of February 1, 2003, under which the Company has a worldwide, exclusive right to
use and practice certain patents owned by BioChemics relating to transdermal
drug delivery technology. Under this agreement, the Company has the right to
sell, market and commercialize all products ("OTC Products") that (i) utilize
and incorporate the BioChemics' patents and know-how; (ii) are classified by the
FDA as over-the-counter products, and (iii) require less than $1.0 million of
clinical development. Specifically excluded from the license are certain
diabetic products developed by BioChemics, products used by dermatologists to
treat cosmetic conditions, and products used or marketed to the animal health
care industry.

      In exchange for the granting of the license, the Company issued 4,500,000
shares of our Class B Common Stock to BioChemics as a license fee with a deemed
value equal to the par value of such shares or $150. This is a one-time license
fee. No royalties are payable to BioChemics under the license agreement.

      With respect to the licensed patents, this agreement will terminate on the
expiration date of the last of the licensed patents to expire. With respect to
licensed non-patented technology, this agreement will have an initial term of
ten (10) years, and will be automatically renewed for successive terms of two
(2) years. The Company may terminate the license agreement upon providing ninety
(90) days' prior written notice of termination to BioChemics.

                                       43
<PAGE>

      Any improvements to the licensed patents remain the property of
BioChemics, but to the extent that any such improvements relate to products and
product candidates, the improvements are licensed to the Company on the same
terms as the initial license under the license agreement. BioChemics must
maintain existing patent filings as well as register the patents in other
jurisdictions as required. If BioChemics does not do so on a timely basis, the
Company may make the required filings at BioChemics' expense.

      Pursuant to an amendment to the license agreement, dated as of July 2,
2003, the trademarks "Osteon" and "PENtoCORE" were licensed to the Company by
BioChemics, subject to quality control standards to be set by BioChemics. In
addition, this amendment provides that all revenue related to the "deFEET" (now
known as "Termin8") mark owned by BioChemics, though not licensed to the
Company, will be paid to the Company, and that the Company will bear all costs
associated with the sale and marketing of the product bearing the mark.

MANUFACTURING AGREEMENT

      The Company entered into a manufacturing and development agreement, dated
as of February 1, 2003, with BioChemics with respect to the manufacturing and
development of the Company's OTC products. Under this agreement, BioChemics
researches, develops and manufactures, or contracts for the manufacture of, OTC
products as the Company may request from time to time. For example, BioChemics
has conducted research for the Company in the form of pre-clinical studies
utilizing animals and the Company has paid BioChemics for this research.

      For the described services, the Company pays BioChemics a fee equal to
BioChemics' costs plus 10%. As permitted by the agreement, BioChemics retains an
unaffiliated company to manufacture the OTC products. The agreement has an
initial term of five years and will be automatically renewed for one additional
year so long as the agreement has not been terminated earlier in accordance with
its terms.

      The Company does not currently, nor does it intend in the future, to
engage in the manufacture of, or conduct any research and development with
respect to, any of the Company's products. However, if BioChemics is unwilling
or unable to meet its obligations under the agreement to the Company, the
Company has the right to retain outside third parties to manufacture its
products although the Company may not terminate the agreement with BioChemics
for this breach.

      During 2006 and 2005, research and development costs incurred under this
agreement were approximately $4,191 and $287,600, respectively, and
manufacturing costs incurred under this agreement were approximately $142,387
and $24,000, respectively.

OFFICE SPACE AND ADMINISTRATIVE SUPPORT

      The Company presently maintains its principal corporate offices on
premises that it shares with BioChemics. The Company does not have a lease
agreement with BioChemics. During 2006and 2005, the Company recorded
approximately $54,000 and $44,000, respectively, in rent expense for this
facility.

      BioChemics and the Company entered into an administrative services
agreement, dated as of September 1, 2003. Under this agreement, BioChemics
provides the Company with administrative support services, including accounting
and tax services; utilities; office, warehouse and storage space; and computer
services and equipment, as reasonably requested by the Company.

      The Company pays BioChemics a fee equal to BioChemics' cost plus 10%. The
initial term of this agreement is five years and will be automatically renewed
on each anniversary date for an additional period of twelve months unless sooner
terminated in accordance.

      During each of 2006 and 2005, the Company paid BioChemics approximately
$46,000 for these services.

                                       44

<PAGE>

REGISTRATION RIGHTS AGREEMENT

      The Company entered into a registration rights agreement with BioChemics
in March 2003 under which the Company has granted to BioChemics, or its
permitted transferees, as holders of shares of Class A Common Stock issuable
upon conversion of the Class B Common Stock held by BioChemics, rights with
respect to registration of these shares under the Securities Act of 1933 (the
"Securities Act"). Subject to limitations set forth in the registration rights
agreement, holders of the securities may require the Company, at its expense, to
file one registration statement under the Securities Act with respect to the
public resale of the securities. If the Company proposes to register any of its
securities under the Securities Act, either for its own account or for the
account of other security holders, BioChemics or its permitted transferees are
entitled to notice of the registration and are entitled, subject to certain
conditions and limitations, to include, at Company expense, their shares in the
registration. In addition, BioChemics has agreed to subordinate its registration
rights to those held by the investors in the Company's August 2005 private
financing. All registration expenses, as specified in the registration rights
agreement, must be borne by the Company and all expenses relating to the sale of
the securities registered must be borne by BioChemics or the other holder of the
securities being registered.

OTHER TRANSACTIONS WITH BIOCHEMICS

      BioChemics made cash advances in 2003 in the amount of $518,200 to cover
Company deficits. The Company subsequently repaid the advances. During 2006
Biochemics provided net working capital in the form of cash advances to the
Company and payment of Company expenses in the amount of $862,116 under a verbal
agreement. Biochemics has continued and is expected to continue to provide
working capital although it is under no obligation to do so. There can be no
assurances that Biochemics can or will be able to continue to provide such
support and no assurance that the Company will be able to obtain other such cash
advances in the event that Biochemics becomes unable or unwilling to continue to
support the Company.

CERTAIN RELATIONSHIPS

      ROBERT E. ANDERSON. The Chairman of the Board of the Company, Mr.
Anderson, has been a director of BioChemics since 2003 and is the holder of
three convertible promissory notes issued by BioChemics, dated August 19, 2000,
September 18, 2000, and December 14, 2000 respectively.

      These notes are convertible into approximately 338,000 shares of
BioChemics' common stock, which represents approximately 5.7% ownership of
BioChemics. BioChemics is in default under these notes. See the
BioChemics-related discussion contained in the "Business-Risk Factors" section
of this report.

      Mr. Anderson does not receive any compensation as a director or otherwise
from BioChemics.

      JOSEPH FRATTAROLI. Mr. Frattaroli, the Company's acting Chief Executive
Officer, President and Chief Financial Officer, directly owns 195,000 shares of
BioChemics common stock. In addition, Mr. Frattaroli indirectly owns 90,000
shares of BioChemics common stock held by a corporation which had provided
accounting services to BioChemics during the period of January 2002 through
April 2003. The shares of BioChemics common stock owned directly and indirectly
by Mr. Frattaroli represent approximately 5% ownership of BioChemics.

      STEPHEN CARTER. Dr. Carter, a director and Chief Scientific Officer of the
Company, holds stock options that are exercisable for 300,000 shares of
BioChemics common stock, representing approximately 5.1% ownership of
BioChemics. Dr. Carter is also employed by BioChemics and receives a salary of
$80,000 per year.

      DIRECTOR INDEPENDENCE

      Because the Company is not listed on a national securities exchange, the
Company is required to adopt a standard for the independence of its directors
used by a national securities exchange of its choice. The Company has adopted
the independence standards for directors of the American Stock Exchange
("Amex"). The Board of Directors has determined that the following directors are
"independent" under AMEX independence standards: Robert E. Anderson, Ronald
Guerriero, D;Anne Hurd, Bruce A. Shear and Brian J. Strasnick.


                                       45

<PAGE>

ITEM 13.  EXHIBITS

(a) Exhibits.

<TABLE>
<CAPTION>

 EXHIBIT   DESCRIPTION OF EXHIBIT                                                             INCORPORATED BY REFERENCE TO:
 NUMBER                                                                   FORM         SEC FILING DATE          EXHIBIT NO.
<S>        <C>                                                            <C>         <C>                       <C>
   3.1     Amended and Restated Certificate of Incorporation              SB-2        December 15, 2005             3.1
           (as amended through December 8, 2005)
   3.2     Amended and Restated By-laws (as amended through               8-K         September 22, 2005            3.2
           September 16, 2005)
   4.1     Specimen Certificate for Class A Common Stock                  SB-2/A      September 12, 2003            4.1
   4.2     Form of Convertible Settlement Note*
   10.1    Employment Agreement, effective June 16, 2003, between         SB-2/A      September 12, 2003           10.2
           Vaso Active Pharmaceuticals, Inc. and Stephen G. Carter**
   10.2    Employment Agreement, dated August 12, 2004, between           10-QSB      November 15, 2004            10.1
           Vaso Active Pharmaceuticals, Inc. and John J. Masiz**
   10.3    2003 Stock Incentive Plan**                                    SB-2        July 3, 2003                 10.3
   10.4    Form of 2003 Non-Employee Director Compensation Plan**         SB-2/A      September 12, 2003           10.4
   10.5    Registration Rights Agreement by and between Vaso              SB-2/A      September 12, 2003           10.5
           Active Pharmaceuticals, Inc. and BioChemics, Inc.
   10.6    License Agreement, dated February 1, 2003, between             SB-2/A      September 12, 2003           10.6
           BioChemics, Inc. and Vaso Active Pharmaceuticals, Inc.,
           as amended by an amendment agreement, dated July 2, 2003
   10.7    Manufacturing and Development Agreement, dated                 SB-2/A      September 12, 2003           10.7
           February 1, 2003, between Vaso Active
           Pharmaceuticals, Inc. and BioChemics, Inc.
   10.8    Administrative Services Agreement, dated September             SB-2/A      September 12, 2003           10.8
           1, 2003, between BioChemics, Inc. and Vaso Active
           Pharmaceuticals, Inc.
   10.9    Brokerage Agreement, effective August 1, 2005, between         10-KSB      April 14, 2006               10.9
           Vaso Active Pharmaceuticals, Inc. and Ferolie Corporation
  10.10    Securities Purchase Agreement dated August 16, 2005            8-K/A       August 19, 2005              99.1
           (including exhibits and schedules)
  10.11    Letter Agreement, dated as of October 12, 2005, among          8-K         November 14, 2005            10.1(a)
           Vaso Active Pharmaceuticals, Inc., Iroquois Master Fund,
           Ltd., Omnicron Master Trust, and RAQ, LLC
  10.12    Letter Agreement, dated as of October 12, 2005, between        8-K         November 14, 2005            10.1(b)
           Vaso Active Pharmaceuticals, Inc. and Smithfield
           Fiduciary LLC
  10.13    Standstill Agreement with respect to Conversion Rights,        8-K         November 14, 2005            10.2
           as amended, dated as of October 13, 2005, between Vaso
           Active Pharmaceuticals, Inc. and BioChemics, Inc.
  10.14    Stipulation and Agreement of Settlement, dated                 10-KSB      April 14, 2006               10.14
           September 21, 2005, among Lead Counsel (as defined
           therein) and certain other parties, with respect to
           In Re Vaso Active Pharmaceuticals Securities Litigation
  10.15    Stipulation and Agreement of Settlement, dated September       10-KSB      April 14, 2006               10.15
           22, 2005, among lead counsel for the Company and the
           plaintiffs and certain other parties, with respect to In
           Re Vaso Active Pharmaceuticals Derivative Litigation
   14      Code of Ethics                                                 8-K         January 25, 2005             99.1
   23      Consent of Stowe & Degon*
  31.1     Certification of Joseph Frattaroli, Acting Chief
           Executive Officer and Chief Financial Officer, pursuant
           to Section 302 of the Sarbanes-Oxley Act of 2002*
  32.1     Certification of Joseph Frattaroli, Acting Chief
           Executive Officer and Chief Financial Officer, pursuant
           to Section 906 of the Sarbanes-Oxley Act of 2002*

            * Exhibit filed with this report.
           ** Management contract or compensatory plan.
</TABLE>

                                       46

<PAGE>

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The following table presents fees for professional audit services rendered
by Stowe & Degon for the fiscal years 2006 and 2005:

                                 2006           2005
                             ------------   ------------

Audit                        $     74,850   $     73,675
Non-Audit                              --            --
Tax                                    --            --
All Other                           6,500            --
                             ------------   ------------

Total:                       $     81,350   $     73,675
                             ============   ============

AUDIT FEES

      Audit fees include the aggregate fees billed for the audit of the our
annual financial statements, reviews of our unaudited condensed quarterly
financial statements, the financial statements included in our Form SB-2, as
amended, and other registration statements.

NON-AUDIT RELATED FEES

      There were no non-audit related fees since the Company came into existence
in January 2003.

TAX FEES

      Tax fees of $1,315 were paid during 2006 for preparation of the 2005
Company income tax returns. The tax services were not provided by our
independent auditors.

ALL OTHER FEES

      Stowe & Degon billed us $6,500 in 2006 for work related to our amended
registration statement we filed during 2006.

      As set forth in its charter, our Audit Committee has the sole authority to
pre-approve all audit and non-audit services provided by our independent
auditor. All services performed by Stowe & Degon were pre-approved by our Audit
Committee.

                                       47

<PAGE>

                                   SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                        VASO ACTIVE PHARMACEUTICALS, INC.


Date: April 18, 2007                    By: /s/ Joseph Frattaroli
                                            ---------------------
                                            Joseph Frattaroli
                                            Acting Chief Executive Officer
                                            Chief Financial Officer


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.


NAME                                     TITLE                         DATE

/s/ Joseph Frattaroli         Acting Chief Executive Officer      April 18, 2007
--------------------------       Chief Financial Officer
Joseph Frattaroli

/s/ Stephen Carter, Ph.D.    Vice President, Chief Scientific     April 18, 2007
--------------------------          Officer, Director
Stephen Carter, Ph.D.

/s/ Robert E. Anderson              Director, Chairman            April 18, 2007
--------------------------
Robert E. Anderson

/s/ Ronald Guerriero                     Director                 April 18, 2007
--------------------------
Ronald Guerriero

/s/ D'Anne Hurd                          Director                 April 18, 2007
--------------------------
D'Anne Hurd

/s/ Bruce A. Shear                       Director                 April 18, 2007
--------------------------
Bruce A. Shear

/s/ Brian J. Strasnick                   Director                 April 18, 2007
--------------------------
Brian J. Strasnick, Ph.D.


                                       48

<PAGE>

                        VASO ACTIVE PHARMACEUTICALS, INC.
                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Report of Independent Registered Public Accounting Firm                      F-2

Balance Sheet as of December 31, 2006.                                       F-3

Statements of Operations for the Years Ended
   December 31, 2006 and 2005.                                               F-4

Statements of Stockholders' Equity (Deficiency) for the Years Ended
   December 31, 2006 and 2005.                                               F-5

Statements of Cash Flows for the Years Ended
   December 31, 2006 and 2005.                                               F-6

Notes to the Financial Statements                                            F-7


                                      F-1

<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Vaso Active Pharmaceuticals, Inc.:

      We have audited the accompanying balance sheet of Vaso Active
Pharmaceuticals, Inc. (the "Company") as of December 31, 2006 , and the related
statements of operations, stockholders' equity (deficiency), and cash flows for
each of the two years ended December 31, 2006. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

      As discussed in Note 2, effective January 1, 2006, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 123(R), SHARE BASED
PAYMENT.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vaso Active Pharmaceuticals,
Inc. as of December 31, 2006 and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 2006 in
conformity with accounting principles generally accepted in the United States of
America.

      The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, certain conditions exist such
as the Company's inability to generate sufficient cash from operations and to
obtain additional debt or equity financing to meet its future obligations. As
discussed in Note 2 to the financial statements, the stockholders' deficiency
and the deficiency in working capital at December 31, 2006 raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.

/s/ STOWE & DEGON
-----------------

Worcester, MA
April 2, 2007


                                      F-2

<PAGE>

VASO ACTIVE PHARMACEUTICALS, INC.
BALANCE SHEET

                                                                DECEMBER 31
                                                            -------------------
                                                                   2006
                                                            -------------------
                      ASSETS
CURRENT ASSETS:
Cash and cash equivalents                                   $             8,627
Restricted cash                                                         136,319
Accounts receivable, net of allowance for doubtful
   accounts of $33,000                                                   30,446
Inventory                                                                93,608
Debt issuance costs                                                      68,713
Prepaid expenses                                                         26,650
                                                            -------------------
  TOTAL CURRENT ASSETS                                                  364,363

Property and equipment - net                                             38,794
                                                            -------------------
                                                            $           403,157
                                                            ===================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES:
Accounts payable                                            $           637,427
Accrued compensation                                                    149,543
Other accrued expenses                                                   73,510
Obligations under capital leases - short-term portion                     2,510
Senior secured convertible notes, net of discount                     2,389,503
Notes payable                                                           870,000
Due to parent company                                                   941,621
Deferred revenue                                                         14,000
                                                            -------------------
  TOTAL CURRENT LIABILITIES                                           5,078,114

LONG-TERM LIABILITIES:
Obligations under capital leases - long-term portion                      9,111
                                                            -------------------
                                                                      5,087,225
                                                            -------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY DEFICIENCY:
Preferred stock - $0.0001 par value; authorized
  10,000,000 shares; issued and outstanding, none                             -
Common stock - $0.0001 par value; authorized
  60,000,000 shares; issued and outstanding, 10,328,604                   1,033
Additional paid-in capital                                            8,858,178
Deferred compensation                                                   (64,411)
Accumulated deficit                                                 (13,478,868)
                                                            -------------------
  TOTAL STOCKHOLDERS' EQUITY DEFICIENCY                              (4,684,068)
                                                            -------------------
                                                            $           403,157
                                                            ===================


                       SEE NOTES TO FINANCIAL STATEMENTS.

                                      F-3

<PAGE>
<TABLE>

                                      VASO ACTIVE PHARMACEUTICALS, INC.
                                           STATEMENTS OF OPERATIONS


------------------------------------------------------------------------------------------------------------
    YEAR ENDED DECEMBER 31                                                   2006                2005
------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                 <C>
   Net revenues                                                        $         104,864   $          25,221
   Cost of revenues                                                              123,743              42,887
                                                                       -----------------   -----------------
     GROSS PROFIT (LOSS)                                                         (18,879)            (17,666)


   Costs and expenses:
     Marketing, advertising and promotion                                         69,635             318,964
     Selling, general and administrative(1)                                    1,902,842           2,627,731
     Research and development(1)                                                   4,911             342,482
     Stock based compensation                                                     60,404               5,491
     Legal settlement                                                                  -             885,000
                                                                       -----------------   -----------------

       Loss from operations                                                   (2,056,671)         (4,197,334)

   Interest expense                                                             (788,039)           (292,532)
   Interest income                                                                 4,204              25,000
   Other expense                                                                    (350)               (353)
                                                                       -----------------   -----------------

   Net loss                                                            $      (2,840,856)  $      (4,465,219)
                                                                       =================   =================

   Net loss per share - basic and diluted (Note 2)                     $           (0.28)  $           (0.43)
                                                                       =================   =================

   Weighted average shares outstanding - basic and
     diluted (Note 2)                                                         10,328,604          10,328,604
                                                                       =================   =================

(1) Includes stock-based compensation expense as follows:


Selling, general and administrative                                    $         189,578   $          15,556
Research and development                                                               -              54,912
                                                                       -----------------   -----------------

Total                                                                  $         189,758   $          70,468
                                                                       =================   =================


                                      SEE NOTES TO FINANCIAL STATEMENTS.

                                                     F-4

<PAGE>

                                               VASO ACTIVE PHARMACEUTICALS INC.
                                        STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)


                                                COMMON STOCK
                                           ----------------------
                                             NUMBER      $0.0001    ADDITIONAL
                                               OF          PAR       PAID-IN       DEFERRED      ACCUMULATED
                                             SHARES       VALUE      CAPITAL         COMP          DEFICIT          TOTAL
                                           ----------   ---------  ------------  ------------   -------------   -------------

BALANCE, JANUARY 1, 2005                   10,328,604       1,033     8,093,656      (183,777)     (6,172,793)      1,738,119
  Fair market value detachable warrants             -           -       563,438             -               -         563,438
  Stock options granted below market                -           -        17,250      ( 17,250)              -               -
  Amortization of deferred compensation             -           -             -        70,468               -          70,468
  Loss from operations                              -           -             -             -      (4,465,219)     (4,465,219)
                                           ----------   ---------  ------------  ------------   -------------   -------------
BALANCE DECEMBER 31, 2005                  10,328,604   $   1,033  $  8,674,344  $   (130,559)  $ (10,638,012)  $  (2,093,194)
  Stock based compensation                          -           -       183,834             -               -         183,834
  Amortization of deferred compensation             -           -             -        66,148               -          66,148
  Loss from operations                              -           -             -             -      (2,840,856)     (2,840,856)
                                           ----------   ---------- ------------  ------------   -------------   -------------
BALANCE DECEMBER 31, 2006                  10,328,304   $   1,033  $  8,858,178  $    (64,411)  $ (13,478,868)  $  (4,684,068)
                                           ==========   =========  ============  ============   =============   =============

                                            SEE NOTES TO THE FINANCIAL STATEMENTS.

                                                             F-5

<PAGE>

                                       VASO ACTIVE PHARMACEUTICALS INC.
                                           STATEMENTS OF CASH FLOWS



------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31                                                       2006                2005
------------------------------------------------------------------------------------------------------------
   CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                            $      (2,840,856)  $      (4,465,219)
   Adjustments to reconcile net loss to net cash used in operating
   activities:
     Depreciation of equipment                                                    15,008              13,147
     Amortization of discount and issuance costs related to
     convertible notes                                                           537,631             198,571
     Stock-based compensation                                                    249,982              70,468
     Bad debt reserve                                                             33,000                   -
       Inventory reserves                                                         60,000              27,049
     Accrued legal settlement                                                    (15,000)            885,000
     Increase (decrease) in cash from change in:
       Accounts receivable                                                       (62,818)                260
       Inventories                                                              (138,644)             98,283
       Prepaid expenses                                                           50,304             (47,959)
       Accounts payable                                                          235,759             (72,701)
       Accrued compensation                                                      131,524             (25,785)
       Other accrued expenses                                                    (78,213)             35,678
       Deferred revenue                                                           14,000                   -
                                                                       -----------------   -----------------
         Net cash provided by (used in) operating activities                  (1,808,323)         (3,283,028)
                                                                       -----------------   -----------------

   CASH FLOWS FROM INVESTING ACTIVITIES:
   Additions to restricted cash                                                        -            (385,901)
   Decreases to restricted cash                                                  249,582                   -
   Purchase of property and equipment                                                  -             (14,063)
                                                                       -----------------   -----------------
         Net cash (used) in investing activities                                 249,582            (399,964)
                                                                       -----------------   -----------------

  CASH FLOWS FROM FINANCING ACTIVITIES:
   Issuance of senior secured convertible notes                                        -           2,500,000
   Offering costs associated with the issuance of senior secured
   convertible notes                                                                   -            (352,155)
   Obligations under capital leases                                               (2,388)             (1,326)
   Due to/from parent company - net                                              862,116              68,725
                                                                       -----------------   -----------------
         Net cash provided by financing activities.                              859,728           2,215,244
                                                                       -----------------   -----------------

   NET DECREASE IN CASH AND CASH EQUIVALENTS                                    (699,013)         (1,467,748)
   CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                707,640           2,175,388
                                                                       -----------------   -----------------
   CASH AND CASH EQUIVALENTS, END OF PERIOD                            $           8,627   $         707,640
                                                                       =================   =================
   SUPPLEMENTAL DISCLOSURES:
     Interest paid                                                     $         250,409   $          51,336
     Income taxes paid                                                                 -                   -
   NONCASH DISCLOSURES:
     Accrued legal settlement converted into notes payable             $         870,000                   -
     Fair value of detachable warrants                                 $               -   $         563,438
     Issuance of capital leases to purchase property and equipment     $               -   $          15,335



                                      SEE NOTES TO FINANCIAL STATEMENTS.

                                                     F-6
</TABLE>
<PAGE>

                        VASO ACTIVE PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS

1.    NATURE OF BUSINESS AND OPERATIONS

THE COMPANY

      Vaso Active Pharmaceuticals, Inc. (the "Company") is an early-stage
company focused on commercializing, marketing and selling over-the-counter
("OTC") pharmaceutical products that incorporate the vaso active lipid
encapsulated ("VALE") technology and the proprietary PENtoCORE technology. The
Company is subject to a number of risks similar to those of other companies in
an early stage of development. Principal among these risks are dependencies on
key individuals, competition from substitute products and larger companies, the
successful development and marketing of its products and the need to obtain
adequate additional financing necessary to fund future operations.

      The Company is engaged in a single operating segment of the OTC
pharmaceutical industry.

BUSINESS DEVELOPMENT

      The Company commenced operations in January 2001 as the OTC division of
BioChemics, Inc. ("BioChemics"), a privately owned pharmaceutical company. In
January 2003, the Company incorporated in the state of Delaware and became a
wholly-owned subsidiary of BioChemics. The Company licenses the VALE patents and
PENtoCORE technology from BioChemics. The Company issued 4,500,000 shares of its
Class B common stock to BioChemics in consideration for the exclusive worldwide
rights to commercialize market and sell the VALE technology for OTC
pharmaceutical products. These shares were issued pursuant to authorization from
the Company's Board of Directors on June 20, 2003.



                                      F-7

<PAGE>

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      GOING CONCERN - These financial statements have been prepared on the
assumption that the Company will be able to realize its assets and discharge its
liabilities in the normal course of business. This assumption is presently in
question and contingent upon the Company's ability to raise additional funds.
Management is in the process of identifying various fund-raising strategies.
These strategies may include an additional private placement of the Company's
equity securities. There are no assurances that Management will successfully
execute such strategies. Biochemics is currently providing working capital
through cash advances and payment of certain Company expenses. Biochemics is
under no obligation to provide working capital and there can be no assurance
that these advances can or will be able to continue.

      USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities and the reported amounts of revenue and expenses. Significant
estimates relied upon in preparing these financial statements include revenue
recognition, allowances for doubtful accounts, product return reserves, expected
future cash flows used to evaluate the recoverability of long-lived assets and
the determination of the useful lives of property and equipment. Although the
Company regularly assesses these estimates, actual results could differ
materially from those estimates. Changes in estimates are recorded in the period
in which they become known.

      CASH AND CASH EQUIVALENTS - The Company classifies investments with
original maturities of three months or less when acquired as cash equivalents.
The Company invests its excess cash in money market funds that invest primarily
in U.S. government securities, commercial paper and municipal obligations and
are subject to minimal credit and market risk. The Company maintains deposits in
financial institutions, which occasionally exceed federally insured limits.
Management continually reviews the financial stability of these institutions.

      ACCOUNTS RECEIVABLE - Accounts receivable consist primarily of trade
receivables from the sale of OTC pharmaceutical products. The allowance for
doubtful accounts is based on the Company's assessment of the collectibility of
specific customer accounts and an assessment of economic risk as well as the
aging of the accounts receivable. The Company's policy is to write-off
uncollectible trade receivables after significant measures have failed to result
in their collection. An allowance for doubtful accounts is established to
represent the estimated uncollectible trade receivables

      INVENTORIES - Inventories are stated at the lower of cost or market, with
cost being determined on the first-in, first-out method. The Company uses
third-party contract manufacturers for the production and packaging of its
products. Finished goods consists of inventory that has been manufactured and
packaged by the contract vendor. Work-in-process consists of bottle, labels and
other packaging materials. Finished goods totaled $47,422 at December 31, 2006.
Work-in-process totaled $46,186 at December 31, 2006. A reserve is established
for finished goods not expected to be shipped within approximately six months of
its expiration date. Reserves for these products totaled approximately $60,000
at December 31, 2006.

      PROPERTY AND EQUIPMENT - Property and equipment is stated at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets, generally three to five years. Repairs and
maintenance are expensed as incurred.

      DUE TO PARENT - The Company reimburses certain administrative services
provided by BioChemics as well as general overhead fees pursuant to agreements
between the Company and BioChemics. In addition it includes working capital
advances to the Company. The due to parent balance represents the net obligation
from the Company to BioChemics at December 31, 2006.

      DEBT ISSUANCE COSTS - The Company incurred debt issuance costs in
connection with the senior secured convertible notes (see Note 4). These costs
are deferred and included in current assets on the balance sheets. The debt
issuance costs are amortized over the term of the related debt issuance. The
amortization expense is included in interest expense.

      REVENUE RECOGNITION - Revenue from product sales is recognized when
delivery has occurred. However, because our products are sold with limited
rights of return we record allowances for product returns, rebates and
discounts, and report revenue net of such allowances. We must make judgments and
estimates in preparing the allowances that could require adjustments in the
future. We base our estimates on historic patterns of returns and on the
expiration dates of product currently being shipped.

                                      F-8

<PAGE>

      Revenue is not recognized unless collectibility is reasonably assured. The
Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of customers to make required payments. If a
customer's financial condition were to deteriorate and result in an impairment
of their ability to make payments, additional allowances may be required.

      STOCK-BASED COMPENSATION - In the first quarter of 2006 the Company
adopted Statement of Financial Accounting Standards No. 123(R) "Share-Based
Payments" ("SFAS 123(R)"), which requires all share-based payments to employees,
including stock options and stock issued under certain employee stock purchase
plans, to be recognized in the Company's financial statements at their fair
value. SFAS 123(R) requires the Company to estimate future forfeitures of
stock-based compensation, while the pro forma disclosure for the years ended
December 31, 2005 excludes only those options that had been forfeited during
that period. The Company has continued to use the Black-Sholes option pricing
model to determine the fair value of options under SFAS 123(R) and has elected
to use the modified-prospective transition method, in which prior period
financial statements will not be restated but disclosure of the pro forma net
loss calculation will be included in the footnotes to the financial statements
for periods prior to fiscal 2006 and the adoption of SFAS 123(R).

      The Company has an employee stock incentive plan and a non-employee
director compensation plan, which are described more fully in Note 6.

      Prior to the first quarter of fiscal 2006, the Company recorded
stock-based compensation issued to employees and non-employee directors using
the intrinsic value method and stock based-compensation issued to non-employees
using the fair value method. Stock-based compensation was previously recognized
on stock options issued to employees only if the option exercise price was less
than the market price of the underlying stock on the date of the grant. During
the year ended December 31, 2005 , no stock-based compensation was recorded
under the intrinsic value method.

      During the year ended December 31, 2006, the Company recorded stock-based
compensation expense of $249,982 in accordance with SFAS 123(R).

      The following table illustrates the effect on net loss and net loss per
share if the Company had applied the fair-value recognition provisions of SFAS
No. 123, as amended, to options granted under the stock option plans and rights
to acquire stock granted under the Company's stock option plans. For purposes of
this pro forma disclosure, the value of the options is estimated using the
Black-Sholes option pricing model and amortized ratably to expense over the
options' vesting periods. Because the estimated value is determined as of the
date of grant, the actual value ultimately realized by the employee may be
significantly different.

                                                             2005
                                                        --------------

Net loss as reported                                    $   (4,465,219)
Less stock-based compensation had all
   options been recorded at fair value                        (359,076)
                                                        --------------

Adjusted net loss                                       $   (4,824,295)
                                                        ==============

Weighted average shares outstanding
   basic and diluted                                        10,328,604

Net loss per share - basic and diluted                  $        (0.43)

Pro forma net loss per share - basic
   and diluted                                          $        (0.47)

      The fair value for these options was estimated at the date of grant using
a Black-Scholes option pricing model using the following weighted average
assumptions for 2005 : risk-free interest rate of 4.3%, a dividend yield of
0.0%; volatility factors of the expected market price of the Company's common
stock of 98% ; and a weighted average expected life of the option of 4 years.
The pro forma effect on net loss for 2005 is not necessarily representative of
the effects on reported income or loss in future years.

                                      F-9

<PAGE>

      INCOME TAXES - The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes." Deferred tax liabilities and assets
are determined based on the difference between the financial statement carrying
amounts and tax bases of existing assets and liabilities, using enacted tax
rates. Valuation allowances are established when necessary to reduce the
deferred tax assets to those amounts expected to be realized.

      ADVERTISING EXPENSES - Costs incurred to advertise and promote the Company
are expensed as incurred. Advertising costs were approximately $44,000 and
$153,000 in 2006 and 2005, respectively.

      SALES INCENTIVES - Sales incentives are netted against revenues when
incurred. Sales incentives are primarily comprised of slotting fees, coupons and
rebates. Sales incentives of approximately $7,200 were netted against revenues
in 2006. No sales incentives were incurred during 2005.

      RESEARCH AND DEVELOPMENT - Research and development costs primarily
include salaries, contractor fees, facilities costs, administrative expenses and
allocations of corporate costs. All such costs are charged to research and
development expense as incurred. Research and development costs incurred were
approximately $4,900 in 2006 and $342,500 in 2005.

      MANAGEMENT FEES - BioChemics provides the Company with certain
administrative, marketing and management services, as well as the Company's
facilities and general corporate infrastructure. Management fees were
approximately $45,900 in 2006 and 2005.

      COMPREHENSIVE INCOME - Comprehensive income (loss) was equal to net loss
for each year presented.

      NET LOSS PER COMMON SHARE - Basic net loss per common share is computed by
dividing net loss applicable to common stockholders by the weighted average
number of common shares outstanding during the period. Diluted net loss per
common share reflects, in addition to the weighted average number of common
shares, the potential dilution if common stock options were exercised into
common stock, unless the effects of such exercises would have been antidilutive.

      Basic and diluted loss per common share are the same for 2006 and 2005 as
potentially dilutive equity securities have not been included in calculations of
diluted net loss per common share available to common stockholders, as their
inclusion would have been antidilutive.

      RECLASSIFICATIONS - Certain reclassifications have been made to the 2005
amounts to conform to the 2006 presentation.

3.    CAPITAL LEASE

      In 2005, the Company leased equipment which was capitalized for financial
reporting purposes under a noncancelable lease. Assets under capital lease
totaled $15,335 at December 31, 2006. Accumulated depreciation of leased assets
totaled $4,984.

Future minimum payments under the Company's capital lease consist of the
following at December 31, 2006:

        YEARS ENDING DECEMBER 31
        2007                                                      3,024
        2008                                                      3,024
        2009                                                      3,024
        2010                                                      3,560
                                                        ---------------

        Total minimum payments                                   12,632
        Less amounts representing interest                       (1,011)
                                                        ---------------

        Present value of future minimum payments                 11,621
        Less current portion                                     (2,510))
                                                        ---------------

        Long-term portion                               $         9,111
                                                        ===============

                                      F-10

<PAGE>

4.    SENIOR SECURED CONVERTIBLE NOTES

      In August 2005, the Company sold $2,500,000 in aggregate principal amount
of Senior Secured Convertible Notes due May 1, 2007 (the "Notes") to independent
institutional investors. The Notes are convertible at any time into shares of
the Company's Class A common stock at a price of $0.70 per share, subject to
adjustment under certain circumstances. The investors also received five-year
warrants (the "Warrants") to purchase a total of 1,298,701 shares of the
Company's Class A common stock at an exercise price of $0.77 per share. In
October, the investors also received an additional 100,000 shares in return for
extending the required date of filing the registration associated with this
transaction by 60 days. In addition, the investors received rights ("Rights") to
purchase up to $1,875,000 in aggregate principal amount of additional Notes at
any time through the maturity date of the Notes, together with additional
Warrants to purchase a total of 974,026 shares of Class A common stock. The
additional Notes are convertible and the additional Warrants are exercisable at
the same respective prices per share as the Notes and Warrants.

      The Notes bear interest, payable quarterly, at the six month LIBOR plus
6.0%, (11.29% at December 31, 2006) with a floor of 10.0% and a ceiling of
12.0%. As part of the agreement, the Company placed $437,000 into escrow for the
purpose of funding substantially all of the interest payments due under the
Notes. Such remaining amount after disbursing required interest payments is
reflected as restricted cash on the balance sheet.

      The Notes are secured by substantially all of the Company's assets and
rank senior to all corporate indebtedness. The terms of the Notes permit the
Company to finance capital equipment purchases, provided the lender is given a
security interest only in the specific assets being financed. On conversion or
full payment, the senior security interests included in the Notes will
terminate.

      The Company incurred debt issuance costs of approximately $377,725 in
connection with this transaction. Included in this cost is $25,571, which
represents the fair value of 64,935 warrants, issued to third party financial
advisors to this transaction. In addition, the debt was issued with detachable
warrants, which were valued at $563,438 calculated using the Black-Scholes
valuation model. The key assumptions used in the Black-Scholes valuation
calculations were an expected life of two and one-half years, expected
volatility of 98%, a risk free rate of return of 4.04% and no expected
dividends.

      The debt issuance costs are deferred and included in other assets on the
balance sheets. The debt costs are amortized over the term of the related debt
issuance. The amortization expense is included in interest expense on the
statement of operations. The value of the detachable warrants is accounted for
as a discount on the debt and is amortized over the life of the debt as interest
expense. In 2006, the Company recorded $206,139 and $331,492 in interest expense
related to debt issuance costs and the amortization of the debt discount
associated with the detachable warrants, respectively. In 2005, the Company
recorded $77,303 and $121,449 in interest expense related to debt issuance costs
and the amortization of the debt discount associated with the detachable
warrants, respectively.

5.    NOTE PAYABLE

      In 2004, the Company and certain of its officers and directors (the
"Defendants") were sued in several securities class action lawsuits filed in the
United States District Court for the District of Massachusetts. The complaints,
which were consolidated and sought equitable and monetary relief, an unspecified
amount of damages, with interest, attorneys' fees and costs, were filed on
behalf of purchasers of Vaso Active Class A Common Stock during the period
December 9, 2003 to March 31, 2004.

      The Company was also named as a nominal defendant in three shareholder
derivative actions (the "Derivative Actions"). The actions were filed against
certain of its officers and directors and against BioChemics, Inc. The
Complaints alleged, among other things, that the alleged conduct challenged in
the securities class action case pending against the Company in Massachusetts
(described above) constituted, among other things, a breach of the Defendants'
fiduciary duties to Vaso Active. The Complaints sought equitable and monetary
relief, an unspecified amount of damages, and attorneys and other fees, costs
and expenses, ostensibly on behalf of Vaso Active.

      In September 2005, the Company and certain of its named officers and
directors entered into an agreement to settle the Class Action. The parties to
the agreement obtained the court's final approval of the settlement on December
14, 2005 and the orders approving the settlement and dismissing the action were
entered on December 21, 2005. The time for filing appeals from the court's
orders ran, and no appeals were filed. Under the terms of the settlement
agreement, the Company, disclaiming any liability, caused to be paid into escrow
for the benefit of the putative class $1,100,000 in cash. The Company's
insurance carrier paid the $1,100,000 in exchange for a release of its liability
under its insurance policy with the Company. Also under the settlement, the
Company is to issue $750,000 face amount of 2-year 5% subordinated callable
notes convertible at $1.75 per share (with full anti-dilution protection) (the
"Settlement"). Of the $750,000 Settlement, a Settlement Note in the amount of
$187,500 has already been issued to plaintiffs' counsel as part of their fee
award as approved by the Court. The balance of the Notes are expected to be
issued shortly because the Claims Administrator has completed its review and

                                      F-11
<PAGE>

evaluation of claims submitted by putative class members and has prepared the
Claims Administrator's report, including recommendations. The report has been
submitted to the Court, together with a Motion for Distribution of the Class
Settlement Fund. We anticipate that the Motion and the Report and Recommendation
will be approved by the Court, at which time a global settlement note for the
balance of settlement amount will be issued for the benefit of the claimants.

      Under the terms of the Derivative Action Agreement, Vaso Active and its
named officers and directors agree, while disclaiming any liability, to
institute or maintain previously instituted corporate governance changes
including, among others:

     o    Having at least one-half of the Board of Directors and two-thirds of
          all Committees of Vaso Active comprised of "independent directors"
          under American Stock Exchange standards of independence;

     o    Continuing to maintain a corporate governance committee;

     o    Changes to the composition and policies and procedures of existing
          committees of the Board;

     o    Review and approval of related party transactions by the appropriate
          committees.

      Vaso Active has agreed to pay to plaintiffs' counsel in the derivative
suits a total of $15,000 in cash and $120,000 face amount of 2-year 5%
subordinated callable notes convertible at $1.75 per share within 30 business
days of final approval by the Court of the Derivative Action Agreement. In
consideration of the corporate governance changes and this payment, the parties
will fully and finally release and discharge all claims against each other.


6.    INCOME TAXES

      The Company has federal and state tax net operating loss carry forwards
available for future periods of approximately $13,040,000. The federal and state
tax net operating loss carry forwards expire beginning in 2024. As a result of
the changes in the ownership of the Company, there may be limitations on the
amounts of net operating loss carry forwards that may be utilized in any one
year.

                                      F-12

<PAGE>

      The tax effect of significant items comprising the Company's approximate
net deferred tax assets at December 31, 2006 and 2005:

                                             2006               2005
                                        ---------------   ---------------

Deferred tax assets:
   Net operating loss carryforwards     $     5,216,000   $     3,628,000
   Accrued legal settlement                           -           356,000
                                        ---------------   ---------------

                                              5,216,000         3,984,000
                                        ---------------   ---------------

Valuation allowance                          (5,216,000)       (3,984,000)
                                        ---------------   ---------------

Net deferred tax assets                 $             -   $             -
                                        ===============   ===============

      The Company believes that uncertainty exists with respect to future
realization of the deferred tax assets and has established a valuation allowance
for the full amount as of December 31, 2006 and 2005.

      A reconciliation between the amounts of income tax determined by applying
the applicable U.S. statutory tax rate to the pre-tax loss is as follows:

                                             2006               2005
                                        ---------------   ---------------

Federal statutory rate                               34%               34%
State tax, net of federal impact                      6%                6%
Provision for valuation allowance on
   deferred tax assets                              (40)%             (40)
                                        ---------------   ---------------

Effective tax rate                                    -%                -
                                        ===============   ===============

7.    STOCKHOLDERS' EQUITY

      PREFERRED STOCK - At December 31, 2006, the Company had 10,000,000
authorized shares of preferred stock, $0.0001 par value per share, of which no
shares were issued and outstanding.

      COMMON STOCK - The Company maintains two classes of common stock. The
Company has 40,000,000 authorized shares of Class A common stock and 20,000,000
authorized shares of Class B common stock. The per share par value for each of
these classes of common stock is $0.0001. Holders of Class A common stock are
entitled to one vote per share, while holders of Class B common stock are
entitled to three votes per share. At December 31, 2006, there were 5,828,613
shares of Class A common stock issued and outstanding, and there were 4,500,000
shares of Class B common stock issued and outstanding, all of which are held by
BioChemics.

8.    STOCK OPTION PLANS

      The Company maintains two stock option plans. The 2003 Stock Incentive
Plan provides for the issuance of up to 2,100,000 shares of Class A common stock
to employees, officers and consultants in the, form of nonqualified and
incentive stock options, restricted stock grants or other stock-based awards,
including stock appreciation rights. The 2003 Non-Employee Director Compensation
Plan provides for the issuance of up to 900,000 shares of Class A common stock
to non-employee directors in the form of nonqualified and incentive stock
options, restricted stock grants or other stock-based awards, including stock
appreciation rights. As of December 31, 2006, there were 1,005,000 and 330,000
remaining options available under the 2003 Stock Incentive Plan and the 2003
Non-Employee Director Compensation Plan, respectively. The following table sets
forth the stock option activity under the Company's two stock option plans:

                                      F-13

<PAGE>

                                                      WEIGHTED-
                                                       AVERAGE
                                       NUMBER OF       EXERCISE       AVERAGE
                                         SHARES         PRICE       FAIR VALUE

Outstanding, January 1, 2005             1,542,000           1.60
   Granted                                 150,000           0.50       0.35
   Exercised                                     -              -
   Forfeited                              (267,000)          1.19
                                      ------------   ------------

Outstanding, December 31, 2005           1,425,000   $       1.56

   Granted                                       -              -
   Exercised                                     -              -
   Forfeited                                     -              -
Outstanding, December 31, 2006           1,425,000   $       1.56
                                      ------------   ------------

Exercisable at December 31, 2006         1,217,500   $        1.54
                                      ============   ============

Exercisable at December 31, 2005           960,000   $       1.59
                                      ============   ============


               OUTSTANDING                                 EXERCISABLE
-----------------------------------------------   ------------------------------
                               WEIGHTED-AVERAGE
  NUMBER OF      RANGE OF       REMAINING LIFE     NUMBER OF    WEIGHTED-AVERAGE
   OPTIONS    EXERCISE PRICES     (IN YEARS)        OPTIONS      EXERCISE PRICE

    300,000        $0.50              8.2            250,000         $ 0.50
  1,125,000   $1.67 to $2.11          7.5            967,500           1.78
-------------                  ----------------   ------------------------------

  1,425,000                           7.6          1,217,500         $ 1.54
=============                  ================   ==============================

None of the options that are vested or are expected to vest at December 31, 2006
have any intrinsic value at December 31, 2006.

The total compensation cost related to non-vested awards at December 31,2006 is
$166,300. The amount is expected to vest over a weighted average period of 8
months.

      EQUITY INSTRUMENTS ISSUED TO NON-EMPLOYEES - As discussed in Note 2, the
Company accounts for stock options granted to employees in accordance with APB
No. 25. The Company is required to record stock-based compensation when it
grants options to purchase its common stock to non-employees under SFAS 123. In
general, the value of these options is calculated using the Black-Scholes
option-pricing model. In 2006 and 2005, the Company recorded $60,404 in
stock-based compensation related to stock options issued to employees, . There
were no other options granted to non-employees.

9.    RELATED PARTY TRANSACTIONS

      On February 1, 2003, the Company executed a five-year agreement with
BioChemics with respect to ongoing manufacturing and development of the
Company's products and product candidates. In accordance with the terms and
conditions of this agreement, BioChemics will research, develop and manufacture
the Company's products on its behalf. In consideration, BioChemics will charge
the Company a development and manufacturing fee at a rate of cost plus 10%. This
agreement is automatically renewed for successive one-year terms. In the event
that (i) BioChemics materially fails to meet the Company's product orders for a
period of more than three (3) consecutive months; (ii) BioChemics commits an
anticipatory breach of the manufacturing and development agreement; (iii) a
force majeure event occurs which the Company reasonably believes will affect
BioChemics' ability to supply and meet its product requirements for a period of
at least three (3) months; or (iv) any of BioChemics' manufacturers are
non-compliant with the regulations required to manufacture the products and are
unable to cure such non-compliance, the Company may qualify and engage at its
discretion, other suppliers and manufacturers as it deems necessary to ensure
uninterrupted supply of the Company's products.

                                      F-14

<PAGE>

      Total amounts incurred by the Company under this agreement during the
years ended December 31, 2006 and 2005 were $142,000 and $24,000, respectively.

      Either party may terminate the agreement upon a material breach by the
other party by giving the breaching party three months to cure the breach. In
event of termination, transition will be conducted in such a manner as to not
cause inconvenience to either party. Termination by BioChemics for any reason,
except for non-payment, shall not be effective until the Company has located and
arranged for continuation of the manufacturing of its products with another
supplier on terms commercially reasonable to the Company, provided however, that
the Company shall have no longer than two years from the date of the notice of
termination from BioChemics to make such arrangements.

      Effective September 1, 2003, the Company entered into an administrative
services agreement with BioChemics. Under this agreement, BioChemics provides to
the Company, at the Company's request, administrative support services including
secretarial support, accounting and tax services, data processing services,
utilities, designated office space, designated warehouse and storage space,
office supplies, telephone and computer services and equipment and such other
office and corporate support services as the Company reasonably requires from
time to time. BioChemics charges the Company an administrative services fee at a
rate of cost plus 10%. The administrative services fee charged to expense during
each of the years ended December 31, 2006 and 2005 was $46,000.

      Biochemics also charges the Company an annual management fee. The
management fee charged to expense during each of the years ended December 31,
2006 and 2005 was $45,852.

      During the year ended December 31,2006 Biochemics also advanced cash to
the Company in order to allow the Company to meet certain financial obligations
necessary for the continued operation of the Company. As a result of these
advances and the unpaid fees related to the agreements described above the
Company had amounts due to Biochemics totaling $941,621 at December 31, 2006
included in current liabilities on its balance sheet.

      On February 1, 2003, the Company executed a license agreement with
BioChemics that allows it to commercialize market and sell OTC pharmaceutical
products using BioChemics' patented VALE system and the PENtoCORE technology and
BioChemics-owned trademarks in the OTC pharmaceutical market. In consideration,
BioChemics was issued 4,500,000 shares of the Company's Class B common stock.
The term of this licensing agreement extends through the date of the last
BioChemics' patent to expire. With respect to the portions of the licensing
agreement that do not apply to a BioChemics patent or patent application, this
agreement extends though February 2013. The licensing agreement can be
automatically renewed for successive two-year terms for the non-patent
technology.

10.   COMMITMENTS AND CONTINGENCIES

      EMPLOYMENT AGREEMENTS - The Company has non-cancelable employment
agreements with the Chief Scientific Officer and the former Chief Executive
Officer, through June 30, 2008. The remaining payments due under these
employment contracts are as follows - $315,000 for 2007; and $157,500 for 2008.

      FACILITY LEASE - The Company subleases its office space from BioChemics,
however, it does not have a formal lease agreement with BioChemics. Total rent
expense for this office space was approximately $54,000 and $44,000 in 2006 and
2005, respectively. With the exception of its capital lease (see Note 3), the
Company is not obligated to any significant long-term lease commitments or other
off-balance sheet financing arrangements.

                                      F-15

<PAGE>

                                                        EXHIBIT INDEX
                                                        -------------
<TABLE>
<CAPTION>

 EXHIBIT   DESCRIPTION OF EXHIBIT                                                             INCORPORATED BY REFERENCE TO:
 NUMBER                                                                   FORM         SEC FILING DATE          EXHIBIT NO.
<S>        <C>                                                            <C>         <C>                       <C>
   3.1     Amended and Restated Certificate of Incorporation              SB-2        December 15, 2005             3.1
           (as amended through December 8, 2005)
   3.2     Amended and Restated By-laws (as amended through               8-K         September 22, 2005            3.2
           September 16, 2005)
   4.1     Specimen Certificate for Class A Common Stock                  SB-2/A      September 12, 2003            4.1
   4.2     Form of Convertible Settlement Note*
   10.1    Employment Agreement, effective June 16, 2003, between         SB-2/A      September 12, 2003           10.2
           Vaso Active Pharmaceuticals, Inc. and Stephen G. Carter**
   10.2    Employment Agreement, dated August 12, 2004, between           10-QSB      November 15, 2004            10.1
           Vaso Active Pharmaceuticals, Inc. and John J. Masiz**
   10.3    2003 Stock Incentive Plan**                                    SB-2        July 3, 2003                 10.3
   10.4    Form of 2003 Non-Employee Director Compensation Plan**         SB-2/A      September 12, 2003           10.4
   10.5    Registration Rights Agreement by and between Vaso              SB-2/A      September 12, 2003           10.5
           Active Pharmaceuticals, Inc. and BioChemics, Inc.
   10.6    License Agreement, dated February 1, 2003, between             SB-2/A      September 12, 2003           10.6
           BioChemics, Inc. and Vaso Active Pharmaceuticals, Inc.,
           as amended by an amendment agreement, dated July 2, 2003
   10.7    Manufacturing and Development Agreement, dated                 SB-2/A      September 12, 2003           10.7
           February 1, 2003, between Vaso Active
           Pharmaceuticals, Inc. and BioChemics, Inc.
   10.8    Administrative Services Agreement, dated September             SB-2/A      September 12, 2003           10.8
           1, 2003, between BioChemics, Inc. and Vaso Active
           Pharmaceuticals, Inc.
   10.9    Brokerage Agreement, effective August 1, 2005, between         10-KSB      April 14, 2006               10.9
           Vaso Active Pharmaceuticals, Inc. and Ferolie Corporation
  10.10    Securities Purchase Agreement dated August 16, 2005            8-K/A       August 19, 2005              99.1
           (including exhibits and schedules)
  10.11    Letter Agreement, dated as of October 12, 2005, among          8-K         November 14, 2005            10.1(a)
           Vaso Active Pharmaceuticals, Inc., Iroquois Master Fund,
           Ltd., Omnicron Master Trust, and RAQ, LLC
  10.12    Letter Agreement, dated as of October 12, 2005, between        8-K         November 14, 2005            10.1(b)
           Vaso Active Pharmaceuticals, Inc. and Smithfield
           Fiduciary LLC
  10.13    Standstill Agreement with respect to Conversion Rights,        8-K         November 14, 2005            10.2
           as amended, dated as of October 13, 2005, between Vaso
           Active Pharmaceuticals, Inc. and BioChemics, Inc.
  10.14    Stipulation and Agreement of Settlement, dated                 10-KSB      April 14, 2006               10.14
           September 21, 2005, among Lead Counsel (as defined
           therein) and certain other parties, with respect to
           In Re Vaso Active Pharmaceuticals Securities Litigation
  10.15    Stipulation and Agreement of Settlement, dated September       10-KSB      April 14, 2006               10.15
           22, 2005, among lead counsel for the Company and the
           plaintiffs and certain other parties, with respect to In
           Re Vaso Active Pharmaceuticals Derivative Litigation
   14      Code of Ethics                                                 8-K         January 25, 2005             99.1
   23      Consent of Stowe & Degon*
  31.1     Certification of Joseph Frattaroli, Acting Chief
           Executive Officer and Chief Financial Officer, pursuant
           to Section 302 of the Sarbanes-Oxley Act of 2002*
  32.1     Certification of Joseph Frattaroli, Acting Chief
           Executive Officer and Chief Financial Officer, pursuant
           to Section 906 of the Sarbanes-Oxley Act of 2002*

            * Exhibit filed with this report.
           ** Management contract or compensatory plan.
</TABLE>